Monday, March 15, 2010

Prof Jagmohan S. Raju, Marketing Department Chairperson, Wharton Business School

The Price is Right

An interview with the renowned Marketing professor Jagmohan S. Raju

Professor Jagmohan S. Raju is the Joseph J. Aresty Professor; Marketing Department Chairperson, Wharton, University of Pennsylvania & Executive Director, Wharton Co-Sponsorship of Indian School of Business. Besides being a wonderful teacher, he is a renowned researcher as well. His research interests include issues regarding pricing, retailing, sales, promotions and coupons, private labels, optimizing channel contracts & competitive strategy.

Markathon: Engineering from IITD, MBA from IIMA, Ph.D. from Stanford University, Assistant Professor at UCLA and now the Chairperson of the Marketing Department at Wharton, University of Pennsylvania. This journey would be the ultimate dream of many youngsters of today. Please share with us the experience of this wonderful journey.

Prof. Raju: My father was a professor and my mother taught in a school. We were not rich but my parents gave me values that were priceless – the importance of education, working hard, and helping others who were not as fortunate. I left home to study in a boarding school, Punjab Public School Nabha, at the age of 10, from there to IITD, IIMA, and Stanford. At each of these institutions, I formed friendships that have lasted a life time. Even today, I am in close touch with friends from my boarding school and we are like brothers.

Markathon: The cost pressures are very high in emerging markets like India and there is increasing pressure to compete on cost. Companies have garnered market share by pursuing a low pricing. Do you think such pricing methods are sustainable in the long run?

Prof. Raju: Independent of what prices you charge, it is extremely important to be cost competitive. Some companies use their lower costs to charge a lower price, and others use the extra margins that lower costs give to build a brand and build market share. Hero Honda is a good example of this.

Markathon: With the booming middle class in India, purchasing power has been increasing manifold. What do you think will be the most important factor in capturing maximum market share: Advertising, competitive pricing or quality?

Prof. Raju: Despite the rise in incomes, the Indian middle class consumer is extremely value conscious and is one of the best at making price-quality trade-offs. To some extent, the consumer has no choice. We spend more on food as a percentage of our income than say a consumer in the US. Therefore the Indian consumer spends more time in making decisions and evaluates products carefully. When buying a consumer durable such as a TV, the Indian middle-class consumer thinks of it as a purchase for a lifetime. But the consumer also has limited income. Therefore, the need for being value conscious.

Markathon: With the rise of the Internet, there is no information arbitrage for companies to leverage. In this context how difficult do you think it is to pursue pricing of products and services?

Prof. Raju: Actually, one could argue exactly the opposite. With the ability to disseminate information inexpensively, companies that truly have a better product or service can communicate the benefits more easily to the customer; the customer can compare one product with the, and be willing to pay a higher price for a better product. You are right - it is now harder to fool the customer, but then it never paid to do that any way in the long run.

Markathon: With your extensive experience in both industry and academia, do you perceive any gaps between the marketing course curriculum and the corporate world?

Prof. Raju: There are a few areas where the academic curriculums lag practice, and there are some areas where the practice is far behind. However, the good news is that at least at Wharton, there is a very close interaction between the two. We learn from each other. Formal mechanisms have been put in place for the two to interact and we do interact sincerely. I work

with many companies to improve their pricing decisions, and during that process, learn what their challenges are. Then we develop models and methods to help them make better decisions.

Markathon: Finally, what are the most important skill sets and qualities that management graduates need to develop which will prove critical to their success in global business environment?

Prof. Raju: I would list the following:

· Use your MBA course time as a gift to learn but do not assume that the learning process will be over when you graduate. It has just begun. One of the roles of good education is to give people the power and aptitude the teach themselves.

· Maintain the friendships that you build at your school. These friends will be your best guides as you all grow together.

· Think of life as a marathon and not a sprint. Most of you will work for over 50 years after you graduate – think of what the world was like 50 years ago. The world in 50 years will see more change than what we saw in the last 50 years. These changes will bring opportunities that we cannot even visualize today. To take advantage of this:

o Be there. Take care of your health. Have a happy family life.

o Be open to change – adapt and develop new skills

o Hire people who are better than you and learn from them.

o Maintain a positive attitude

o Try to help one person every day.

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