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Fairtrade in India

By Saumya Roy, Shloka Nath
FORBES INDIA

Jul 21, 2010

Indian farmers have been selling their fair trade produce to developed markets for years by getting certified by the Fairtrade Labelling Organizations International (FLO). Now the FLO wants to invert that model. It will introduce a fair trade label for the Indian market next year. The Spice Board of India is looking to follow suit with a fair trade label for the domestic spice market.

First, let’s understand what fair trade is. Fair trade is an organised movement that helps producers in developing countries get a premium for their products if they follow better social, labour and environmental standards.

More than $4 billion worth of fair trade products were sold internationally in 2008, up 22 percent since the previous year. While sales of products like fair trade tea, coffee, flowers, wine and beer have grown in double digits for the last several years, cultivation has outpaced demand, according to reports.

If the fair trade movement is implemented in India, it could open up a huge new market for fair trade farmers, giving them stability against foreign exchange fluctuation.

For the movement to be successful, however, it requires the customers to be sensitive about this. “The size of the market is very small because Indians are not really concerned about this,” says Arvind Singhal, chief executive of retail consulting company KSA Technopak. “Companies are trying to create fair trade brands for their own reasons but if the customer is not sensitive then this will have only a limited impact.”

The Indian market and other domestic markets in producing countries are increasingly important for the fair trade movement because they could each be larger than the European market, which is the largest market for fair trade products. For instance, take Chetna Organic Farmers Association, which works with 9,000 cotton farmers in the Vidarbha region of Maharashtra, Telangana in Andhra Pradesh, and Koraput, Bolangir and Kalahandi region of Orissa. It sells most of its cotton in Europe at a premium of Rs. 320 a quintal. But even now it is able to sell only half the produce; the rest gets sold in India without any premium.

It is no wonder then that Seth Petchers, chief executive of Shop for Change, a marketing and labelling organisation for domestic fair trade products, is trying to launch this movement in India. Shop for Change launched a range of fair trade clothes along with designer Anita Dongre’s prêt label AND. The collection featured an ad campaign that starred fair trade cotton farmers along with former Miss India, Gul Panag.

This collection was made with fair trade cotton from Chetna’s farmers in Orissa, who were paid Rs. 35 per kilo of cotton rather than the market price of Rs. 30 per kilo. The FLO also fixes a fair trade price, which includes a minimum price for the product and a fair trade premium. Says Reykia Fick, external relations co-ordinator, FLO, “On top of stable prices (usually the fair trade minimum price), producer organisations are paid a fair trade premium — additional funds to invest in social or economic development projects.”

Farmer members of Chetna, in Andhra Pradesh’s Karimnagar district, have used this premium along with an international grant to build a storage warehouse for their cotton. During the off-season, they rent out the warehouse as a marriage hall and distribute earnings for the co-operative. Another farmer group in Maharashtra’s Akola district has used the premium to build a school. In Kerala’s Kannur district, the premium is used to create a fund for distressed farmers. It has also allowed the community to set up solar sensing technology as a benign blockade warding wild elephants off the cashew nut trees. Their cashew produce is labelled Jumbo Cashews in the European market.

All of this may or may not result in a price premium for a consumer depending on whether a retailer chooses to crunch its margins. Increasingly, retailers have started selling fair trade products without a price premium for consumers. Dongre’s fair trade collection sold at the same price as her other clothes. Cadbury’s launched a fair trade version of its Dairy Milk chocolate internationally at the same price as the rest of its Dairy Milk chocolates.

In case of fair trade products “it is the imagery which is different rather than a product differentiation,” says Shital Mehta, COO of premium menswear brand, Van Heusen. Right now fair trade numbers are small. Companies want to portray themselves as fair employers but are just experimenting with a small percentage of their products. Will they ever get all their products under the fair trade umbrella?

That change will come when it becomes a civil society movement as it has in the West, says Tomy Mathews, founder of Fair Trade Alliance of Kerala. Mathews’ alliance has been supplying through the FLO for years and he says, “Attempts to create independent labels diverting from the uniform global message on global trade justice is doing disservice to the philosophy of fair trade. I don’t look fairly on [the] Spice Board initiative or the Shop for Change initiative. The moment you confuse market with different logos you’re already losing the game before it begins.”

Retailers that have included more equitable conditions for artisans and weavers, such as Fabindia and Anokhi, have done well here already and this movement can get extended to farmers as well, says Roopa Mehta, president of the Fair Trade Forum of India.

But there may still be some distance between promise and scale in the market. Devangshu Dutta, CEO of retail consulting company, Third Eyesight, says he sees a market developing for fair trade products, albeit slowly. “Things will change. But that change will have to come from the customer side. Currently, it is a very limited market but it could be a business proposition for a few companies.”

Find this article in Forbes India Magazine of 30 July, 2010

Growing Jewellery Retail Through Malls

RETAIL JEWELLER – Interview with Devangshu Dutta, Chief Executive, Third Eyesight

May-June 2010

Retail Jeweller (RJ): How do you view the current scenario in the organized retail environment?

Devangshu Dutta (DD): While a mall operator may like to drive fixed rentals that are based on their footfall projections, this is not working in favour of retailers yet.

Most shopping centers / malls have not demonstrated yet that they can drive overall footfall consistently. More importantly, most malls are struggling to generate footfall that is relevant to merchandise retailers.

Currently consumers are still using malls as a location for an outing with friends and family; while food courts, and in some cases cinemas, are busy, retailers are yet to get the benefit of the footfall that most malls are generating.

RJ: The jewellery industry’s opinion is divided on the scope of retailing from malls. Comment

DD: In this context a company selling a product that is a considered high-value purchase, such as jewellery, may find a non-mall location to be more suited to its needs, regardless of the rental per square foot.

If jewellery retailers are looking at malls, they need to focus on those that are consistent with their own product mix and standing – not all jewellery retailers are equally premium in their positioning either.

Selecting the most appropriate locations within any mall will depend on how the customer flow has been designed.

RJ: In the long run do you see the growing influence of mall culture impacting jewellery retail?

DD: I believe that the presence of jewellery retailers in malls will grow gradually, as both jewellery retailers and malls become more sophisticated, and as malls become part of the mainstream shopping culture.

It is also important for a mall to be more consistent in their brand and store mix, and to be seen as location appropriate for a high-value, high-involvement purchase. For this upmarket malls, jewellery retailers and other high value retailers need to work closely together before and after a mall is launched to ensure that a consistent upmarket flavor is maintained throughout.

(To open a PDF copy of this interview, click here.)

Expecting Zarafication?

My first brush with Zara and Inditex (Zara’s parent company) was in the 1990s, when we were comparing product development and supply chain best practices for another European retailer.

In 2002, after writing a case study on the Zara business model, I was (and continue to be) surprised at the number of downloads from the website (referenced at the bottom of this article).

In 2004, the interest at the Images Fashion Forum was so intense that the Q&A after the presentation exceeded the allotted time, to the extent that I was almost declared persona non grata by the organising team!

I’m glad to say that we’re all still friends and, together, witness to the logical next phenomenon: the much anticipated Zara store launch in India in May 2010. And what a phenomenon! On a high-footfall day, at full price, the Delhi store looks as if the merchandise is being given away for free.

In 2006, India was the 8th highest source of traffic to the Inditex website (more than half a million, almost 2 per cent of the total); incredible, considering that the other Top-10 countries already had Inditex stores. Although Zara finally signed a joint-venture with the Tata Group, I’m pretty sure that those thousands of other rejected prospective Indian licensees and franchisees must be getting their Zara-fix now as customers.

What does the Zara launch mean for the Indian fashion and retail sector? Is this the beginning of a new era? Should we expect Zarafication of the market, where the customer is driven by fashion, and the supply chain will turn and churn products faster than ever before? Should other international brands and Indian fashion brands be worried?

A peek at history is useful here. It is said that when Spanish conquistadors landed on the shores of the Americas they managed to conquer the land and the people through a combination of guns, germs and steel. [Credits to Jared Diamond for that evocative phrase.] That is, the Spanish carried guns and fine steel swords but, most importantly, they also carried diseases that were alien to the local population. In many places, the weakened and leaderless indigenous people were simply too battered psychologically and physically by disease, to fight the colonisers.

Keeping that in mind I would say, Zara’s entry is a warning bell only if your business is suffering from recent financial and operational illnesses. It is only dangerous if your team are psychologically weak, and would be overwhelmed just by the thought of the supply chain wizardry that Zara has deployed in its business internationally. It may be fatal for sleepy marketing teams whose only strategy has been to spend lots of money on advertising in season and on mark-downs after the season.

But it’s not doom and gloom for brands and businesses that have a competitive spark of life. If you’re prepared to learn, Zara’s business can provide lessons on how to create a product mix that doesn’t stay on the shelf for months, and on how to create the buzz and excitement around the brand.

Zara’s business success in India is not a foregone conclusion. Let’s look at the facts.

Zara’s business model in its home market was built on getting up-to-date fashion into the market before anyone else, and at lower costs. Its prices encouraged fashion-conscious consumers to buy more frequently, and though its limited production quantities were a way of reducing risk, it added to the allure of the brand. In most overseas markets, however, Zara is a somewhat more premium brand. The “value-for-money” for the brand rests on fashionability rather than product quality.

The Indian consumer base, on the other hand, is less fashion-sensitive than the European consumer. This is not equivalent to being less sensitive aesthetically – Indian consumers can tell good design from bad; allowing, of course, for varying taste! However, value consciousness drives many consumers to buy during discount sales with delay of 2-3 months, rather than buying current fashions at full price. This can be a problem for a brand that thrives on change.

Zara will initially have a limited physical footprint. It is targeted at the premium to luxury end of the market, fitting a certain physical profile of customer. Its products that are imported are disadvantaged by a hefty import duty and shipping costs, as well as the shipment lead time. So, there is time available to Indian businesses that want to adapt their business model, and learn from this new competitor.

With the product development strengths and the agility that Indian apparel companies have displayed in the past, there is no reason why Indian brands cannot compete effectively with Zara on their home turf. When it comes down to it, I think Indian businesses (the small ones, with less “organisation” and “process” orientation) are fast on their feet in identifying design trends and are able to responding to the trends with products being available in the market very quickly. I would call them the Indian “baby Zaras”.

So the real question is this: can these Indian “baby Zaras” learn to be disciplined and structured, and learn to scale up their businesses?

Could we, perhaps, even see some people creating copies of Zara’s styles and bringing them to the market quickly at much lower prices (in effect doing a Zara on Zara)? Let’s not forget, what is today an 11-billion Euro business was once a contract manufacturer to other retailers, and Zara started with one shop carrying low-priced versions of products inspired by those of high-fashion designer brands.

The coming years promise to be interesting and I think we should watch out for an Indian version of an Inditex emerging in the next few years. It remains to be seen whether it will be from among the existing players in the domestic market, an exporter who is a contract manufacturer for western retailers (as Inditex once was), or someone totally new.

The people who should be really worried are those international brands whose product mix in India is weak, whose prices make you want to marry a rich banker, and whose brand ethos is totally unclear. To them I would say: Zara has you in its gun-sights.

Foreign Players in Indian Retail

Erica Lee Nelson
Span, May-June, 2010

Despite some concerns in India regarding foreign direct investment (FDI), Devangshu Dutta, chief executive of the retail and consumer goods consulting firm Third Eyesight, has witnessed many improvements in the Indian supply chain as large U.S. companies, such as McDonald’s, have set up operations here.

He recalls the improvement in skills, technology and quality the company imparted to Indian vendors as it required them to meet its exacting global standards. In the retail sector, the government of India allows FDI of up to 51 percent for single-brand retailers, and 100 percent for wholesale cash and carry multi-brand outlets which are open to businesses but not individual consumers.

While multinational companies have preferred franchise models, more are now seeking joint ventures and greater control over their presence here.

Today many U.S. retailers want to own and operate their own stores in India. Dutta explains that this is motivated from the need to take advantage of core business competencies and control quality. When they are in a new market abroad, “brands that are used to retailing directly to consumers naturally want that ability,” he says.

“When you actually have the ownership it becomes that much easier to transfer knowledge, transfer skills and transfer people.”

Retail models are also an issue of geography. The U.S. market is much more consolidated with large, vertically-integrated national players, whereas the Indian market has more layers and suppliers that don’t sell directly to consumers. It is their concerns, as well as those of consumer groups and small retailers, which are reflected in the Indian government’s current policies, Dutta says. Giving the example of international fashion brands, he explains there is a feeling their deeper pockets and global brand image give them an advantage over Indian clothing brands.

That’s not to say that Indian retailers are running scared from international competition, though. Dutta believes that over time fears about increased FDI levels have decreased.

“Indian retailers have gained in scale…they feel more confident to compete now,” he says. Dutta also advises that foreign companies can help limit these fears by aiding manufacturing and supply chains in India.

“It can only be tackled by working on a model that is truly a win-win,” he says, “both for the foreign entrant and for the local economy.”

Erica Lee Nelson is a Washington, D.C.-based journalist who is studying at Jawaharlal Nehru University in New Delhi.

This article was published in Span (Issue of May-June 2010).

Look Into Your Customer’s Eyes

REVIEW: FLIP THE FUNNEL: Joseph Jaffe (John Wiley & Sons)

I’ve read Joseph Jaffe’s book across multiple air journeys, nationally and internationally. I agreed with the principles described and saw parallels with excellent services businesses over the past few years. However, the implications didn’t quite strike me in the gut until I realised – while writing this on board an aircraft – that the journeys I had taken with this book had also been with just one airline.

My loyalty to this airline is not because of the mileage card I hold, although their mileage programme is certainly among the best in the world. It is not because they were the cheapest or the most on-time, though they compete favourably with other comparable airlines.

My loyalty to them is because of what they did during the Mumbai floods in July 2005. Those who remember the chaos, through personal experience or through media, wouldn’t blame airline staff for abandoning their counters, and leaving the airport to try and reach home as early as they could. Certainly most of them must have felt helpless in the face of increasingly desperate passengers who couldn’t expect to depart any time soon. Jet Airways stood out as being the only one in Mumbai’s Terminal 1-B whose team felt responsible enough to stay back at the airport to be available to the passengers. Not only did they ensure that the passengers stuck in the terminal were safe, but that all waiting passengers got three meals a day! Whether or not they were flying with Jet Airways.

Now, in telling you about incident, I have closed the loop and given you a living example of the “flipped funnel” that Jaffe describes in the book.

The normal marketing funnel is described by the process Awareness, Interest, Desire and Action (or “AIDA”) which underlies the spray-and-pray approach of traditional marketing. The result of AIDA is that a lot of customers become aware of a business, brand or product. Some are interested enough to seek out the product. However the number who move on to the next stage of actually expressing desire to buy is lower, and those who actually buy are fewer still, as amply demonstrated by carts being abandoned before actually checking out.

Jaffe points out that the AIDA principle was created in times of abundant growth in the US, but is a suicidal funnel to fall into when resources are scarce. It is lopsided, with more money being spent on customers who will not buy. It is linear and does not capture the complexity of buying behaviour. It is open and incomplete because it only handles potential customers up to the point where they become actual customers, but does nothing with them thereafter. AIDA also inherently assumes customer churn, hence the opening focus on creating awareness among potentially new customers.

The alternative principles Jaffe describes are simple: getting more customers to buy from us and more often (repeat purchases), to spend increasing amounts with us (loyalty), and finally, to recommend us to their friends and associates (referrals). However, to do this requires dramatically different thinking from AIDA spray-and-pray. Jaffe’s alternative model – ADIA (Acknowledgment, Dialogue, Incentivisation and Activation) – focuses on customers more than prospects.

Acknowledging customers itself is such a major stumbling block for so many companies, such as the retailer whose front-line staff would prefer to fold and put away garments than meeting the eyes of the customer who has walked into the store. In some cases it may be about using technology effectively rather than as a barrier. When the taxi company can recognise the number you are calling from and close your order in less than 120 seconds, why does the telephone company that issued that number make you jump through burning hoops for 5-10 minutes before they will allow you to request a duplicate bill?

That acknowledgement should lead to an on-going dialogue, before, through and well after the purchase is done. This would be supported by constant incentives for the customer to buy more from you. It is not about having a loyalty programme, as Jaffe quotes studies that demonstrate that loyalty programmes alone don’t produce loyalty; in fact there are enough businesses that do not run loyalty schemes but have what can only be called fan followings.

The final link in that funnel is building that community of evangelist enthusiasts who will carry your brand message farther and far more effectively than any traditional form of marketing could. Religious organisations have known this for thousands of years – it is high time that businesses and other organisations recognised the power of the community as well.

Jaffe acknowledges that Seth Godin actually came up with the term “flipping the funnel” over 3 years ago, when he released the e-book of that name (available on sethgodin.typepad.com) primarily about using social media effectively. Jaffe, to his credit, has applied the principles more fully across the marketing and customer service process.

Jaffe recently sold his business, crayon, but has kept his title “Chief Interruptor” at the acquiring company. If you want to make your marketing really pay, you’ll find it worthwhile letting “Flip the Funnel” interrupt your normal marketing thought-process.

(This review was written for Businessworld.)

Width or Depth : A Critical Choice

Diwakar Kumar

IndiaRetailing, June 2, 2010

Customers visiting a store are looking for either the width of merchandise – the variety of product lines offered – or the depth – the number of each item or particular style of a product on offer. For most department and brand stores, a superior merchandise width generates better sales results, especially if the target audience is trendy or style conscious.

In a bid to satisfy the discerning customers, large format retailers generally focus on the width of merchandise. And for them it becomes mandatory to give the ‘feel of everything’ in a store; small format retailers, on the other hand, need to be little more strategist and know how to utilise the shelf area.

But, what is more important – width or depth?

In a poll question asked by IndiaRetailing, ‘Retailers need to focus on width – rather than depth – of merchandise to attract new customers’, 79.33 per cent of the audience supported ‘width’, 17.33 per cent went with ‘depth’, while the remaining 3.33 per cent preferred to remain neutral.

Devangshu Dutta, chief executive, Third Eyesight, says, “Depth and width are two facets of ‘variety’. For a retailer, whether depth is more important than width or vice versa depends on the retailer’s format and business model. For most large-format stores, it is certainly important to give the customer the feeling of ‘everything is available under one roof’ and initially width rather than depth is more important. However, even for large-formats, to avoid comparisons of ‘sameness’ with other large-format competitors, depth begins to become important once the initial market presence has been established.”

Dutta emphasises, “More importantly, the merchandise depth – varieties within a product category – enables the retailer to address different segments within the customer base. For a speciality retailer and its customers, clearly depth is more critical.”

“Customers are increasingly looking for novelty in product experience and this can only come through width rather than depth. One has to, however, ensure that the new offerings are relevant, otherwise this could result in increasing the working capital and possible write-offs,” thinks Viney Singh, MD, Max Hypermarket India.

Gopalakrishnan Sankar, chief executive, Reliance Footprint, says retailers need to focus on the width of collection (as well as the depth) because today discerning customers require choice in terms of brands, designs and price points. “This will cater to the varying tastes of different customer segments and also different moods of the same customer,” says Sankar.

“Depth-oriented merchandising strategy works better for specialised stores. Most apparel and FMCG-buying decisions happen within three feet from the merchandise. By that information, the visual merchandising can trigger an impulsive reaction by how the merchandise is presented – both in terms of style and value. Value comes with abundance: displaying merchandise in larger quantities reduces the perceived value and hence would be more attractive to the value-centric consumer and vice-versa,” observes Ashmit S Alag, director, Academy of Applied Arts.

“Width-based VM strategy focuses on vignette settings, where coordinated merchandise is displayed together to show how things can go together or match in design or utility. While this display technique enables the consumer to gauge the ‘width’, for the retailer it leads to more number of SKUs sold per transaction,” concludes Alag.

So, clearly, as experts point out, one doesn’t take precedence over the other. Both width and depth of merchandise have their roles to play and which one to focus on depends solely on the retailer’s format and business model.