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4 Mar

Businesses: Beware of the C-word

If I had to define culture, I would say it is the unique values that are collectively held and reflective of a society or of a defined subset of people in that society.

And because culture reflects things that cannot be always standardized or easily manipulated, it is a big factor influencing how a business operates, grows, and survives.

Trying to change the market and its preferences in any significant way is an uphill battle only a microscopic percentage of businesses have managed to win. And even that has happened only when these businesses demonstrated an advanced understanding of how humans work and what they desire on a much, much deeper level — combined with excellent execution chops.

But most other businesses that err on the cultural front often end up paying dearly. Sharing some examples in today's letter.

Walmart in Germany

Germany was the first European country Walmart forayed into, in 1997. It was known for its Everyday Low Price (EDLP) strategy in America and the highly discounted prices on all goods sold.

When it entered Germany — a rather mature retail market — its competitors like Kaufland and Lidl reacted by offering deeper discounts than Walmart. The prices at which Walmart was forced to sell products made its operations unsustainable.

But that wasn’t all.

Culturally, Walmart faltered on multiple counts.

They tried selling packaged meat, but Germans preferred to buy from the butcher. The Walmart practice of cashiers bagging the groceries after billing was also unusual for Germans because they preferred to do it themselves.

Walmart in Germany required its sales staff to greet the customer at the door and smile — a practice that some male shoppers interpreted as flirting.

A morning motivation chant is how the American teams at Walmart start their day. But Germans are averse to such displays of excitement at work.

Hans-Martin Poschmann, Verdi union, which represented the 5000 German Walmart employees, said —

“People found these things strange; Germans just don’t behave that way.”

Walmart failed to grasp the importance of unions in Germany. Adding to his criticism of Walmart, Hans pointed out —

“They didn’t understand that in Germany, companies and unions are closely connected. ”
“Bentonville (Walmart headquarters) didn’t want to have anything to do with unions. They thought we were communists.”

Failure to sustain the price wars that ensued and a decade-long back-and-forth on cultural rules impacted Walmart's expansion in Germany.

By 2006 Walmart was forced to re-think its decision to expand in Germany, and decided to leave.

A New York Times article documenting the decade-long fiasco wrote —

“Some of Wal-Mart’s problems stem from hubris, a uniquely powerful American enterprise trying to impose its values around the world. At Wal-Mart’s headquarters in Bentonville, Ark., however, the message from these missteps is now registering loud and clear.”

Betty Crocker in Japan

General Mills, the parent company of the Betty Crocker brand, turned its attention to Japan in the 1960s as the market for cake mixes in the USA matured.

However, unlike the western way of baking cakes using an oven, Japanese households didn’t use ovens. So, Betty Crocker tailored the cake-mix product to suit the one appliance found in every Japanese household —the electric rice cooker.

What Betty Crocker failed to grasp was the value of rice in Japanese minds. Rice is practically consumed in all three meals in Japan.

Other than being a staple, rice is considered sacred. Rice in Japan possesses symbolic value. Newly cooked rice reflects the core of Japanese civilisation: pure and unadulterated by foreign things.

But baking a cake meant using chocolate or vanilla. This didn’t bode well with the cooking culture in Japan, and the cake mix was abandoned completely.

On this bittersweet note, another case that I can think of is the failure of...

Dunkin’ Donuts in India

Dunkin’ Donuts (DD) was introduced to India by Jubilant Food Works in 2012. It was the same franchising partner that launched Domino’s.

Dunkin’ Donuts’ initial range of products was limited to sweet doughnuts and coffee with the grab-and-go mindset typical of the American breakfast culture. However, India didn’t share the same view on the type of food (a sweet dish with coffee) and had different breakfast culture.

Indians preferred having breakfast at home as a meal, which was usually savoury, with tea as the preferred beverage.

Moreover, despite Meduvada, which looks similar to a doughnut, the idea of a sweet doughnut reduced DD’s image to that of a pastry shop. Additionally, sweets in India are consumed on special occasions, which was the association local customers made.

Customers didn’t visit Dunkin’ Donuts to get a breakfast snack. Dunkin’ Donuts reacted to this by introducing a more familiar range of products, such as burgers and sandwiches, which increased footfall temporarily.

In the long run, it diluted Dunkin’s brand image and confused the customers. It expanded too soon by expanding to 77 stores and later slashed that number down to 37 in a span of two years.

I am certain that many other examples exist of businesses ignoring the cultural backdrop of a region and paying heavily for it.

But the lesson here is that invisible, subjective, and hard-to-manipulate factors such as local culture play a huge role in the success of a business.

Culture signals a kind of commonly codified group thinking which, when not respected, could lead to outright rejection or boycott.

These stories make me respect the sociological and anthropological aspects of a market that much more. Customer behaviour is just one facet, but there are many others that underlie this observed behaviour, like tradition, latent beliefs, social and economic background, and the cultural milieu.

Think about how cemented and conditioned most of our habits and preferences tend to be.

Even as a founder and marketer who is always thinking about consumers from an objective distance, when I switch places and stand at the other side of the fence as a consumer, I realize that I'm no different than the people I'm studying.

And just by observing my own patterns of consumption, I can tell you that ignoring implicitly held cultural notions that don't show up in any data is a recipe for disaster.

This is also what makes B2C so hard to crack.

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