Large public organizations have a fiduciary responsibility to do one thing: to please shareholders by increasing returns which are then reflected in its stock price. Granted, some new social organizations use a triple bottom line analysis to decision making. Yet these organizations are few and far between, and are not nearly as lucrative from an investment standpoint to wall street investors. Referring to the WSJ article "Danone Expands Its Pantry To Woo the World's Poor," is it in Danone SA's best interest to try to introduce products in developing nations, where many cannot afford these luxury food items?
Danone is faced with the challenge of dilution of brand image with the tradeoff of increasing market share. Sure, Danone could price its yogurt in Senegal at 10 cents a pouch with the Danone logo on it, but the company decided to brand the product otherwise. One of the reasons why this is the case is the significant risk of brand dilution. Danone faces the risk of cannibalization of sales of yogurt in nearby wealthier African countries, such as Nigeria, as well as in Europe. By naming this product "Dolima," Danone not only made the name fitting to the local culture, the company was able to distance itself from the luxury Danone brand. Had Danone just named the product "Danone Pouch," the company risks importers taking this product to Nigeria or France and reselling it at significant margins. This would then cannibalize the sales of its luxury yogurt in these countries.
Franck Riboud is well aware of this tradeoff as he states, "I think we will put the Danone name on this once the yogurt has taken off." Will Riboud decide to introduce a luxury yogurt brand bearing the Danone name once an established market and supply chain is born? Time will only tell, but it might be beneficial to examine how a single product can be sold for different amount around the world. Meet the Big Mac Index.
This index prices Big Macs from McDonalds and standardizes it to USD. In India, a Big Mac will run you $1.62, while in Switzerland the same burger will costs $6.81, a 420% increase in price. I am not advocating that Danone price a branded yogurt in accordance to this index, moreover I can understand why Danone elected to create multiple brands in divergent countries.
Danone's shareholders must be satisfied with its 14% increase over the last year, especially considering this occurred during the European market crisis. Perhaps diluting rebranded yogurt is the secret ingredient for sweet returns.
Affordable Yogurt: How Nutritional Is It?
ReplyDeleteA concept which drew my attention in this article, but was not further developed was the fact the Danone prides itself on providing healthy and affordable products to the world’s poor. I was impressed to find that Danone did achieve success in its sales when it reduced its prices and customized its product to the preferences of the given locales such as Bangladesh and Senegal. However, the company did not capitalize on the fact that when you are dealing with the poor the most important service you can provide to them is meeting their nutritional needs and if you can do this in a very cost effective way then you have a win-win situation. This is why Plumpy nut was so effective, because it essentially met a vital need as opposed to a want.
The article mentioned that 50g of rice is more appealing and cheaper than 50g of yogurt primarily because it is more filling and serves to meet a greater need. Based on the fact that Danone already promotes health conscious products such as Activia in its Western markets it should place more emphasis on selling yogurt that is not merely sweet and cheap in the sense of appealing to customers, which would for a large extent be young kids, but it should also try to appeal more to the parents who will buy this for their children by having the yogurt be fortified with essential vitamins and minerals, particularly those that will help with whatever health related problems are prevalent in the area. Danone should rely heavily on its ability to meet this need to local citizens so when consumers budgets begin to get very tight, they can still have the motivation to purchase the item if for nothing else for its nutrition benefits.
Another facet that impressed me about Danone’s operations was their willingness to join forces with a successful local businessman in Senegal, knowing that they could both maximize their effectiveness through joint efforts. In addition, Danone seemed open and willing to also working with the local women, giving them business opportunities to sell the product for a small commission. Although, this was not sustainable, the important point is that Danone was open to giving these women a chance, which they were still able to take advantage of when sales increased.
This is a lesson that can be gained from those selling Plumpy Nut to children in dire need in Niger. Plumpy nut only meets in immediate, dire, and shor-term need to an important but small subset of the population. But what about the mothers who are not even receiving enough nutrients to produce enough breast milk. Solving the problem more closer to its root would be more sustainable than “quick fixes and although this quick fix is highly indispensable in the fact that is saves lives instantly, it cannot be relied upon indefinitely for the long-term into the future. Like Danone, women in Niger must be empowered with the ability to make money for themselves so they can transfer health and wealth to their children. Solutions in the field of sustainable development and social innovation can help solve Niger’s problem by developing solutions to the countries lack of water and arid, dry climate which creates a pandora’s box of a flood of other problems. Fix this problem, and you solve many of Niger’s other problems including but not limited to the pre-mature deaths of many of their malnourished children.
So let’s think’s outside the box to prevent a Pandora’s box of problems from continuing on into the future!