Many things in this world argue whether the chicken or the egg came first.
I personally find it to be one of the useless arguments there is, but hey, some one has to give in first. And usually the argument only ends when one person compromises and agrees to the other side.
Case in point, we had a meeting with an international map provider who wants to be more active in the Philippine market.
I showed them what their competitors had, and bar none, their competitors had a more user-friendly interface with beautiful colors and split screen functionality. This company however had a basic model which can be sourced free from the internet via pirated licensing.
“Look you have to improve your products,” I told them. “At present, your competitors are killing you because they have these so and so added features.”
“Yes, I can make the changes but bottom line is, how many units will you order?” the company’s South American Head of APAC Development asked me.
“Well, that depends on the price right?” I answered. “But it also depends on how superior the product you can give me will be, and whether or not it’s competitive enough when compared side by side to your other competitors.”
“But how can you expect me to prioritize development if you cannot give us a concrete order?” he asked.
“In the same way that I cannot give you a concrete order if I don’t see a superior finished product,” I answered. “Of course I know that your company is credible and good, but unless I see and touch the finished product in my hands, I will not be able to see if it’s good or not.”
“Trust me, we can make it good.” he said.
“Yes, I trust you can make it good. Regardless, unless I actually touch and feel the product and determine it’s good, I might get stuck in a product development cycle where I’ve already committed the order, and have no choice but to accept any subpar product that may come out!”
“But how can we start developing without an order?!” he said frustratingly.
“Because if you don’t start developing and don’t keep up with your competitors, you won’t be able to penetrate the Philippine after-market!” I answered.
Look my friend, it’s all about competitiveness. Unfortunately, companies like you have to constantly develop to keep up with your competitors. Don’t do it at our expense and charge us the sunk costs. It’s sink or swim here.
“Look, you have asked us to make changes,” the guy opined. “How can I make the customized changes you want if you don’t give us an order?”
“Well, the issue is, your current model needs to change to keep its competitiveness up. Other GPS providers already have split screens and 3D rendering. Yours is still the basic model.” I still patiently explained. “If you don’t change, which you need to be just to keep up on market standard, then you won’t sell.”
“But other companies like Hyundai and Honda like our maps,” he insisted.
Aaaargh, in my mind, I wanted to tell him, “If other companies like Hyundai and Honda like your maps, then what are you doing here talking to us?!” But I was nice and answered instead, “Well, you’re talking about OEM. We are talking about after market. Meaning, people only buy as an upgrade.”
The guy changed track. He then proceeded that his company has worked with a lot of emerging economies like Indonesia, Thailand and Brazil, and they worked great. Other products can charge less because these are illegal pirated products. To last in the business, your products have to be licensed.
I sighed. “The Philippines is a different animal. Though it’s tempting to lump it all with other emerging countries, having worked here for almost two years, I know there are still big differences. For example, Filipinos don’t really care too much about license if you charge them a high price for it. Sure, they’ll love a licensed product, but few will really pay Php 3,000 to Php 5,000 for a licensed product that they can get cracked free from the internet.”
“But that’s illegal!” he insisted.
“It’s illegal, yes. But you’re fighting a losing battle if you think Pinoys will stop buying illegal products,” I said. “Instead of fighting it, join it. Lower down your prices. Do what Pioneer does — offer products that are cheaper than its foreign counterparts and slightly more expensive than the pirated ones. Given the marginal added cost to the quality Pioneer provides, then people will go for a real Pioneer head unit.”
“It’s only when you lower your prices, people use it and your product becomes more and more popular then you can actually increase your prices for some premium privileges.” I explained. “But you have to first get your products into your customer’s cars first.”
“So how much quantity will you order?” the South American Head of APAC Development once again pressed us.
“Well, it depends on the price, right?” I answered. “If the price is too high, we will not order any. If the price is right, then we will order more. If we have exclusivity and the price is low, we can buy more from you and resell these licenses to our competitors. And hence, can bring up the volume.”
“But how can I give you the price if you cannot guarantee the quantity?” the S. American dude pressed us. “I need to give the proposal to my boss but I need the quantity!”
“That is true,” I answered. “But again, I cannot give you a quantity unless you agree on the price. If the price is Php 3,000 per license as you have written in your letter, then no thanks. We cannot sell that product. Especially when it’s around 30-40% of my cost!”
“But the GPS map is important!” he said.
“True, but not important enough that a person buys a head unit because of the map,” I said. “If they wanted a complete license map, then they can easily go to Garmin and buy a separated unit.”
As expected, the foreigner kept on going around in circles, insisting that Filipinos look for quality and are happy to pay for it. Meanwhile, I am telling him that while there are more Filipinos who look for quality and have the money to pay for it, for most people, accessories are an add on and they are actually not willing to pay for something legal when they can easily get it on the internet for free.
We were going around in circles. Chicken and egg arguments once again.
Sigh — to do business in the Philippines and to persuade foreigners that the Philippines is different from the rest.
And given that we’ve been in this business since 2006 and have talked to most of your clients, then it’s good to actually have an open mind and hear what we have to say.
We are not arguing with you by the way. Instead, we are just telling things as it is, as we have heard it.
Sorry for being the bearer of bad news.
Anyway, mid-week now. Have a great week ahead!