By Michael J. Silverstein, Abheek Singhi, Carol Liao & David Michael
How an innovative business strategy, first developed in India’s market stalls and street bazaars, is starting to spread from East to West as companies search for ways to deliver value for money in an era of austerity. It is an idea driven by the consumer’s search for value and exposure to higher-quality goods—and a global consumer view that there is a need to acquire the best goods at lower prices.
When Indian consumers experience the perfect mix of quality and value, they will often say “paisa vasool.” It is the highest praise. Around the world, consumers are budget squeezed, skeptical of suppliers and merchandisers, and worried about their future. Paisa vasool can become the watchword to creating greater value, more features for less money, and consumers who become your advocate.
Paisa vasool can become the watchword to creating greater value, more features for less money, and consumers who become your advocate.
For more than a thousand years, there has been a vigorous exchange of ideas and technology between the East and the West. But the newly affluent consumers in China and India are changing the direction of the stream of ideas once more—particularly in business.
Now, across China and India companies are, through intense rivalry, redefining the nature of competition and introducing an altogether sharper, harder-edged, cut-throat approach to business. In Shanghai and Mumbai, Delhi and Beijing, it is not the MBA that counts but the MO—the modus operandi—forged in the heat of commercial battle. As Ratan Tata, chair¬man of the Tata Group, puts it, companies in the emerging markets are “almost working in a war-like situation” as they battle for commercial supremacy.1
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In pursuing their goals and dreams, these companies and their leaders are not content with business as usual. Yes, they have listened to and learned from their rivals in the West, but the Eastern firms are cherry-picking the best ideas and then developing their own, without feeling weighed down by legacy thinking. Ambition, drive, determination, ingenuity—these characteristics are not, of course, unique to Chinese and Indian business leaders. But in the daily battle to survive, the leaders have elevated these traits to a new level, and U.S. and European companies must learn to do likewise—or lose. There is still time to develop these attributes and hone the skills—but this time is measured in months and years rather than a decade or more. Take a look at Broad Company’s YouTube video, to get a sense of the speed of the challenge to conventional time frames. In the video, the company uses time-action photography to demonstrate the construction of a fifteen-story hotel using prefabricated parts in six days.2
The best companies are repackaging the knowledge and know-how developed in China and India, allowing it to spread throughout the rest of the company to stimulate growth in their domestic and other emerging markets.
Besides being ultracompetitive, the most successful companies are ultrasensitive to the requirements of the newly affluent consumers: high quality and a low price. The companies have cleverly developed strategies to cater to these apparently paradoxical demands. Much has been written about jugaad—the concept of doing more with less. This is attracting great interest in an era of scarce resources and heightened concern about climate change and sustainability.
We give greater focus to another powerful concept that promises to have a profound impact on global business—paisa vasool. Paisa vasool is an Indian expression that is used to categorize a purchase or service as fully satisfying—high quality, great value, a complete package that delivers value for money. We first heard it used on the streets of Delhi at an outdoor market. Since then, we have seen it continuously applied in both China and India. It is part of a natural frugality that many Indians and Chinese have. They grew up with little, often heard stories from their parents about deprivation, and, as a result, try to stretch their incomes as far as possible. They are also quick to complain and discredit a supplier for poor value, low quality, or misrepresentation.
The Indian and Chinese consumer wants the complete range of product benefits packaged at a price point that sizzles with value. As Pawan Goenka, president of Mahindra & Mahindra’s autos and agricultural business, told us, “The Indian consumer will not be like any consumer. They want West¬ern technologies and features and Indian cost.” Goenka knows. He was the leader of a project to build India’s first SUV—a product that costs half as much as its competitors and delivers a full range of benefits. This SUV is now a key export item for Mahindra.
How Paisa Vasool Comes to Life in the Market
If you travel in India, you quickly discover that the majority of consumer goods are exchanged in street markets and bazaars, which cover almost all cat¬egories of goods. You are warned not to pay the asking price, because buyer and seller lose face if the exchange of goods takes place at the first bid. From an early age, children learn that they offer only what they can afford and only what they think the goods will sell for. Children are urged to “spend money wisely, learn to bargain, never be embarrassed about offering a lower price.”
In a typical Mumbai bazaar, you can buy three polo shirts for $10 or half a dozen pairs of socks for less than $5. In the same market, you can buy an electric fan, a pair of “Pumo” sneakers—clearly designed to pass off as the more famous Puma brand—pineapple slices, “secret” medicines for almost any ailment, and a wide range of personal care products. Here, paisa vasool—where goods with appropriate features and benefits offer great value—is alive and well.
Sometimes, next to the market, there is a modern mall with an array of luxury stores. The stores are clean, quiet, and pristine in appearance. At one of these, we inquired about a pair of Nike running shoes—they were $150. We asked if the shopkeeper had sold any that day, and the answer was a slow shake of the head, no.
If paisa vasool is an Indian phrase, the underlying concept is nevertheless flourishing in China, too. Western-style chain stores may be much more prevalent in China than in India—we estimate that “organized trade,” the regional and national chain stores, will account for nearly half of consumer transactions in 2013 in China—yet Chinese consumers continue to use the simple stalls of local merchants for fresh vegetables, meat, local delicacies, inexpensive clothing, shoes, medicines, and home decorative goods.
Companies that have found ways to build a paisa vasool approach into their strategy are among the most successful in China and India. One way to translate paisa vasool is low entry pricing. This will vary by category. In China and India, it puts most foods and personal care products under RMB 6 or 10 rupees (less than $1). This is the loose change that millions of the new consumers carry in their pockets when they go to market stalls and other traditional retailers. Yet, added together, it can create fortunes.
In India, for instance, Godrej has a powdered hair dye packaged in three-gram containers and sold for 7 rupees ($0.15). The company sells this in 1.1 million retail outlets, which translates into a 65 percent share of the hair dye market. Likewise, in China, Coca-Cola has come up with the “RMB 1 Coke” in some of the smaller, lower-tier cities. This has made the company the largest beverage manufacturer in China, with a 25 percent share of the market.
On the face of it, such a strategy sounds so easy: repackaging products into small, low-priced units and making them affordable for millions of custom¬ers. But it is much more complicated than it seems. It requires a combination strategy: one that provides the right manufacturing assets, a retail network with broad distribution, innovation in ingredients, creative packaging that delivers gross margins, and the ability to move fast.
We have taken the concept back to Western markets with substantial suc¬cess. Paisa vasool will become an even more important frame of reference as many Western consumers caught in the global war for high-paying jobs experience real income declines. They too will want more for less and more features for the same price.
We have created a checklist to help companies devise the right strategy (see the sidebar “BCG’s Paisa Vasool Checklist”). Follow these recommenda¬tions and answer these questions, and your company can develop the art of manufacturing paisa vasool products.
Aravind Eye Care: Paisa Vasool in Action
Vaidheyan, a fifty-two-year-old farm laborer from Muthupettai village in the interior of Tamil Nadu, is a typical patient of Aravind Eye Care, a com¬pany attempting to bring cataract surgery to the 7.5 million needy in India. Married with two children, he earns about 25 rupees a day—less than $1. As he told us, “I was not able to see people at a distance. I was not able to see people visiting my farmland.”
One day, he visited an Aravind-sponsored eye camp that came to his village. He was given a battery of tests, and then he was prescribed surgery at the main hospital in Madurai. After a free ten-minute operation, Vaidheyan regained his sight. It was one of more than three hundred thousand surgeries that are carried out each year under the auspices of Aravind Eye Care.
The company is the brainchild of G. Venkataswamy, an ophthalmologist who founded the company at the age of fifty-eight, after retiring from India’s government medical service. India has the largest proportion of cataract blind in the world. There is only one ophthalmologist for every 120,000 people in rural India.
Dr. V, as he was known before his death in 2006, opened the first Aravind Eye Care Hospital, with only eleven beds, in the mid-1970s. Today, there are six major hospitals and forty-eight eye care centers that conduct research, manufacture supplies such as the intraocular lens, operate an international eye bank, and run an institute to transfer best practices to other eye hospitals in developing countries worldwide.
To provide high-quality eye care in large numbers and make it affordable and accessible, Dr. V devised a three-pronged strategy:
1. Adopt highly standardized processes to optimize the doctor’s time. The time spent by the surgeon per operation is significantly lower at Aravind Eye Care Hospital than at other institutions (twelve to twenty-two minutes, versus fifty-five minutes at a private medical college).
2. Introduce an assembly-line approach to surgery to enhance the productivity of surgeons. Surgeries at the Aravind hospitals are carried out by surgeons in blocks of two or three hours, with as little as one minute between consecutive surgeries. The routine tasks are carried out by well-trained, low-cost staff who constitute almost 60 percent of the total workforce. The productivity of Aravind surgeons is six times greater than that of their peers in India: a surgeon at Aravind does 2,000 surgeries a year, compared with a national average of about 350. This also results in significantly lowering the cost.
3. Provide low-cost manufacturing of expensive consumables. Cataract surgery shifted to intraocular-lens-based (IOL) surgery in the late 1980s; the lenses then had to be imported and generally cost between $100 and $4,200. Aravind established Aurolab, an independent entity, to make intraocular lenses at one-tenth the cost per lens. The facility soon expanded to other eye care products, making them at the same level of quality as their Western counterparts but at a fraction of the cost—a relevant consideration in developing economies.
Dr. V found a way to cut costs—and he also found a way to guarantee quality. Aravind hospitals have a lower incidence of complications during surgery than surgeries done through the U.K. National Health System. Not surprisingly, the company, with an EBIT (earnings before interest and taxes) margin of 46 percent in 2010 on revenues of about $30 million, thinks that it can take the lessons to the West and reduce the cost of health care—applying innovation, industrialization, and the in-sourcing of material components.
Paisa vasool may not be second nature today—but it describes a strategy that is starting to spread far beyond the borders of India. For the most part, the newly affluent consumers in China and India grew up with little and bargained for what they did buy in local bazaars and street markets, and now they are taking this approach to the shops on a day-to-day basis. In the wake of the global economic downturn, consumers in other emerging markets—as well as in the United States and Europe—are also bargain hunting, which means that companies must provide a unique value proposi¬tion: products that square the circle by being affordable and high-quality. Done right, this strategy can simultaneously deliver gains in market share in China, India, and the rest of the world.
The article is an excerpt from the book: The $10 Trillion Dollar Prize: Captivating the Newly Affluent in China and India, by Michael J. Silverstein. Abheek Singhi, Carol Liao and David Michael. (Harvard Business Review Press, 2012)
References
1. Damian Whitworth, “Ratan Tata: The Mumbai Tycoon Collecting British Brands,” Times, (London) May 21, 2011, www.thetimes.co.uk/tto/magazine/article3021187.ece.
2. “Ark Hotel Construction Time Lapse Building 15 Storeys in 2 Days (48 Hrs),” YouTube, August 13, 2010, www.youtube.com/watch?v=Ps0DSihggio.
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About the Authors
Michael J. Silverstein is the author of Trading Up and one of the founders of The Boston Consulting Group’s global consumer practice. Abheek Singhi is the leader of BCG’s India consumer practice. Carol Liao heads BCG’s China consumer practice. David Michael leads BCG’s globalization practice.
