Rohit Nautiyal, The Strategist – Business Standard
New Delhi, 30 June 2014
fine Sunday morning, 29-year-old Nishant Malhotra woke up to non-stop
message beeps from his smartphone. Irritated, he picked up his
phone. The first SMS read, "Stop everything and start shopping:
Get extra 40 per cent off only today; 900-plus products. Code
WOW 40." While this offer came from Gurgaon-based online
shopping portal Jabong, the next message he checked had information
on a similar promotional offer running on fashion portal Myntra.
There were myriad SMSes from a handful of other shopping portals
urging him to make the most of his day-off from office. Malhotra,
an avid online shopper, began his Sunday early but without a whimper
As the next phase of consolidation kicks in with Flipkart’s acquisition of Myntra, e-commerce companies realise that the one metric that will help them achieve growth is focusing on revenue per visit or RPV, which is a combination of the conversion rate on the website and the average order value. Mind you, this is one step ahead of the single-minded focus on conversion rate visible at the time when the e-commerce industry was still young. The smart ones know that while they could probably double their conversion rate by cutting all prices in half, this would likely have a negative impact on the bottomline by reducing the overall revenue generated. Watching revenue per visit ensures that the host site is increasing the rate of conversion without compromising revenue.
Leading e-commerce companies like Flipkart, Myntra, Jabong and FabFurnish already claim they are shipping around two to three and in some cases up to five products for each order received on their website. The whole idea is based on simple math really. Experts peg the cost of acquiring a customer by e-commerce companies has come down – at Rs 300, down from Rs 1,000 two years back – while the cost of servicing an order has gone up with an increase in manpower and infrastructure costs. Says Ravi Vora, senior vice-president, marketing, Flipkart, "There is enough noise about online shopping today and the best part is that each player is not required to put efforts separately to draw attention. Today more than 60 per cent of shoppers on Flipkart are repeat customers."
In such a situation what will separate the men from the boys will be the way a player clubs his offerings and services the last mile to make the whole process more efficient. Praveen Bhadada, senior director at Zinnov, believes, "Analytics will decide the prospects of growth for e-commerce players." In other words, how well a firm knows who its customers are, what they want and how to urge them to spend more every time they walk into an online store is key. And what will arm online store managers with this knowledge is customer data harnessed from the website and other sources and crunched and put in a shape that helps in customising each offering.
Discounts are juicier than ever
Coming back to the point on driving volumes by offering discounts, many players have a similar discount strategy: lure customers into spending a fixed amount of money by dangling the juicy bone of high discounts, sometimes up to 50 per cent. Now there are two ways of offering discounts. One is the old school general sale in which every consumer gets a fixed discount at a certain point in a given category. The other, and the more new way, is about creating different catalogues for different customers. To put it simply, a catalogue sale is an occasional deal available on a given assortment for a stipulated time period. For example on June 23 both Myntra and Jabong ran a discount deal of 40 per cent on a set of products compiled in one catalogue. Says Praveen Shah, co-founder and managing director, "When we give incentives to shoppers, the chances of repeat purchase go up significantly."
FabFurnish follows a variant of the ticket-size principle to design discounts and drive volumes. The company claims that currently the average number of items on a shopping basket is two/three. The baskets are divided as ‘furniture’ and ‘non-furniture’. While the average order size of a furniture basket is around Rs 10,000, non-furniture basket, which may include bed and bath, decor, lighting, kids and baby products etc – stands at Rs 3,500. In the last two years, FabFurnish has tweaked its discount strategy completely. If earlier it was offering discounts based on the ticket size -that is, the higher the ticket the bigger the discount – now it has fashioned lucrative offers on smaller ticket prices as well.
Alongside, it has chased this set of buyers relentlessly by improving its product recommendations. The principle of recommendation works like this: Apart from suggesting brands and offers, the site will also prompt other categories of products that a buyer could buy along with the original product on the list to avail of an extra discount. The results, the site claims, are as expected. About 30 per cent of the shoppers clicked on the recommendations and conversion rate went up by 20 per cent. Says FabFurnish co-founder Vikram Chopra, "If one does not put some constraint on the order value, the revenue will go down. Also, it is the best way of increasing the number of items per basket."
To drive volumes and cross-category impulse purchase, Myntra has been running what it calls ‘basket promotions’ for a year now. Says the company’s COO Ganesh Subramanian, "Picture a scenario in which a consumer has come on the website to buy two products. After making the selection her order value comes to Rs X. By adding one more product of lesser value, she will be able to claim a Y per cent discount on her order. In most of the cases we have observed the consumer ends up buying the third item." What he means is that in doing so the consumer usually experiments with a new category. Myntra claims the number of items per order has gone up by a count of three products in the last one year. Catalogues created for women have driven volumes for the company. Similarly Jabong has seen a big jump in sales by cross-selling accessories.
Getting the logistics right
As leading e-commerce companies exit the phase of customer acquisition to take on the challenge of customer retention, logistics will be crucial. Says Shah of Jabong, "When per-order value goes up along with the number of items, it is viable for us to pass on the savings to the customers." This is achieved by driving efficiencies in logistics.
Let us try and understand the math. The cost of delivering two items of the same size to the shopper’s doorstep will not be radically different from what it takes to deliver one unit. In this scenario, if the ticket size on a given order goes up by, say, Rs 1,000, an e-commerce company can log savings of up to 20 per cent on its delivery cost, say experts. How? Take just one element: call centre charges. When an e-commerce company outsources call management, it has to pay a certain amount. If the number of calls remain the same but the order value associated with a call goes up, it means same workload – and therefore the same fee – for the call centre but higher realisation for the e-shop.
While most online shopping companies that started off with an inventory-led business model have cut down heavily on stocking inventory and moved towards the managed marketplace model, order aggregation is forcing them to re-evaluate their strategies. Take this example. Suppose a customer in Chandigarh has demanded two products from a website that works on the managed marketplace model. If it has to source these two items from two different merchants located in, say, Surat and Delhi, it is unlikely that both the items will reach the customer on the same date. Add the shipping cost the e-commerce company incurs. Where does it leave loyalty and efficiency?
Subramanian of Myntra – the portal which hopes to be profitable by 2015 – says, the website tries to forecast as best as possible but yes, it doesn’t get it right 100 per cent of the times. "There is a gap between demand and forecast," he adds. "But our split order percentage is in low double digits."
But there’s a catch. Delivering more items per order will demand more investments from logistics partners. Says Sanjiv Kathuria, co-founder and CEO at e-retail delivery fulfilment company Dotzot, a DTDC company, "If the weight per shipment is 1 kg or more, we will have to look for a transport solution other than bikes." To leverage the network of DTDC and accomplish timely deliveries, Dotzot is planning to bring some of the best global practices in logistics to India. ‘Click and collect’ is one. As part of this, online shoppers will be able to pick up and return their orders at multiple booths set up by various players.
Aggregating orders is one answer. But the task is easier and faster for companies that stock a major portion of the inventory. With a number of promotions lined up during any given week Jabong has managed to increase the number of items per order by 25 per cent from last year. To service its biggest market of Delhi NCR faster, the company has opened four packaging centres in the NCR itself. In this way it is able to deliver within 20-24 hours of receiving an order.
In all this shopping portals are following in the footsteps of their brick and mortar predecessors. Devangshu Dutta, chief executive officer of specialist consulting firm Third Eyesight, sums up the trend succinctly: "E-commerce companies in India have to focus on the principle of low price needing to be supported by low cost. Global players like Amazon and Walmart have grown by offering lowest prices and keeping their operational costs low. Promotions drive repeat purchase that eventually make up for lost margins and this is no different for e-commerce companies."
(Published in Business Standard .)
Phadnis, The Times of India
Bangalore, 28 June 2014
Global e-tailing behemoth Amazon and N R NarayanaMurthy’s family office Catamaran Ventures have floated a joint venture to help small and medium businesses (SMBs) join the online bandwagon, taking advantage of a burgeoning number of online shoppers.
Cataraman holds a majority 51% in the JV — Taurus Business and Trade Services — that was incorporated in New Delhi in 2012. It has two active directors, Harish Bhardwaj and Kuldeep Singh Bisht.
"Catamaran and Amazon Asia formalized a partnership in May to help offline sellers and SMBs in India to take advantage of the potential of the fast growing online customer base in the country. The partnership will focus, accelerate and scale the inclusion of SMBs into the digital economy," said the spokesperson of Taurus Business and Trade Services.
The JV entity will equip SMB sellers with online tools and help them gain a larger customer base for their existing merchandise that will increase revenues and footfalls for SMB retailers, the spokesperson said.
However, the nature of the JV is unclear—whether it’s to beef up back-end delivery operations or if it is a structure created to get into direct e-commerce. At present the government does not permit FDI in e-commerce. Some sources said the JV could be a backdoor entry to foreign players in the multi-brand space or it could even accelerate the partnership to spearhead offline store launches in the near future.
"Till the time FDI is allowed in e-commerce, it’s a barrier for any foreign company to set up an outfit. Some e-commerce players have side-stepped in some form or the other by having arm’s-length relationships with Indian partners," said Devangshu Dutta, CEO of retail consultancy firm Third Eyesight.
Last year, Catamaran Ventures exited from its Rs 200 crore investment in Manipal Global Education Services, selling its stake back to the promoters of the company. Catamaran has also invested in Gurgaon-based Hector Beverages that makes energy drink Tzinga. An email sent to Catamaran on how the entity is structured didn’t elicit a response.
(Published in The Times of India.)
Rashmi Pratap, Hindu BusinessLine
New Delhi, 27 June 2014
That Pandit Jawahar Lal Nehru was a champion of the co-operative movement is well-known. But a little-known fact is that he extended the concept of co-operatives to not only banking, farming and sugar, but shoes as well. When one such shoe co-operative pioneered by him in Karnal (Haryana) fell on bad times in 1954, two brothers bailed it out. DP and PD Gupta retained the employees and converted the co-operative into a company. As giving customers the freedom to choose was a priority in the newly Independent country, the company was suitably named Liberty Shoes.
In the half-a-century that followed, the company thrived with its range of innovative products and soon became an aspirational brand. But when global winds of change swept the country, like most brands of its generation, Liberty began to feel the pressure. Archaic processes and a limited retail presence pushed it to the fringes of the industry by 2004. The brand is today frantically trying to make a comeback. But the question is: Can a 60-year-old company stay relevant in a market that now boasts the likes of international giants Nike and Reebok at one end and home-grown successes such as Relaxo and Metro Shoes on the other?
The CEO of Liberty Group, Adesh Gupta says the company has reoriented its approach to production, supply chain management and retail strategy. “We are no longer pushing our products to distributors and customers. The daily production is now interlinked with our previous day’s sale as well as customer feedback. That means, producing what is in demand rather than creating an inventory that could return to us after six months,” he explains.
And that, says Gupta, has been the company’s best-ever move in a decade. Its earlier strategy was successful but not sustainable, he concedes. “Retailers were not armed with tools to give us continuous feedback. We had legacy issues,” he says.
Gupta, who took over as Liberty Shoes CEO in 2004, then met dealers once in six months, only to find out that most of the designs which he thought would sell had no takers. That meant piled-up stocks for the distributors and retailers, clogging the supply chain.
But he was in for even bigger trouble. In September 2005, Liberty Shoes signed a 49:51 joint venture with the then Kishore Biyani-owned Pantaloon Retail (now an Aditya Birla Group company). On paper, they were to open 45 stores in three years and target a turnover of Rs. 350 crore. In anticipation, Liberty increased capacity through new plants — two in Himachal Pradesh and one in Uttarakhand. “We added 60 per cent new capacity.” But the joint venture never took off.
“They (Pantaloon) promised us business worth hundreds of crores on paper. But it never came to us because they were sourcing from cheaper local brands in Agra despite their commitment to us. They would always ask us to supply at ridiculously low prices, usually half the MRP,” says Gupta. (An email to the Future Group went unanswered.)
Liberty, already battling an outdated supply chain and rising capital expenditure, was now saddled with extra capacity. The final blow came in the form of souring industrial relations. “In 2006, we had a huge strike, which we resolved in a day. A second one happened within a week and a third within a month,” Gupta recounts, laying the blame on politics. “We were victims of a political climate that disturbed the system,” he says.
On one hand, the company went on capacity and retail overdrive and on the other, it was hit by a strike. The result was that its takeoff crashed. Till 2008, it somehow maintained its topline, but the expenditure rose sharply and profitability vanished.
Treading a new path
Gupta decided to seek professional help. He recalls meeting consultants who wanted crores in return for coffee-table books that promised to tell him how to bail out the business. Finally, he approached the Vector Consulting Group, which is known for its Theory of Constraints. “They led us to work on the pull model, which means we just replenish the sold stock and there is no inventory. The reaction time is cut from six months to one day,” he says.
Liberty took four years to build this supply chain and system. “Till 2012, we were clearing dead stocks of our own stores and retailers through promotions or discounts. Now, if I sell 100 pairs in a day, I produce only 100 the next day. We are not working on a forecast model, we produce according to demand.”
While the back-end measures are in place, the company will have to double its efforts to increase customers and sales. “There has been a fundamental shift in the Indian market, as well as marketing strategy in the last decade. Young Indians are far more aspirational than they were 20 years ago, and that is a challenge for all brands of the previous generation,” says Arvind Singhal, chairman and managing director of the consulting firm Technopak. “Their communication and product strategy have to be in sync with social media, print and digital platforms.”
Brand strategy specialist Harish Bijoor concurs: “Social media is becoming so dominant and relevant that being there is a hygiene factor.”
The comeback Czech
Much like Liberty, yet another footwear brand is trying to create a buzz in the market to win back its customer base. Czech brand Bata has been in India for 84 years and is now working doubly hard to reinvent itself at all levels — products, retail reach and media campaigns. Last quarter, Bata spent Rs. 3 crore (0.6 per cent of revenue) on its 360-degree integrated marketing campaign ‘Where Life Meets Style’.
“Bata needs to reinvent its lifestyle positioning… (it) has dominated on the basis of its products and prices. But the price-and-product-generation has moved on, making way for a stylised generation, which is price-resilient. Bata cannot forever remain a bastion of lifestyle pricing,” says Bijoor.
Agreeing that pricing is no longer the dominant factor it once was, Devangshu Dutta, chief executive at consultancy firm Third Eyesight, says, “Today there is a lot more competition, with international brands deepening their engagement with the Indian market. Even consumers are willing to spend on higher-priced products as long as it gives them an edge — whether in terms of looks or comfort.”
After suffering losses in the early 2000s, Bata began setting its house in order. Since 2005, it has been downing the shutters of small outlets and opening new large-format stores. It has remodelled stores and shut down bleeding properties. And in a major break from the past, it has extended its working hours, and stays open on Sundays.
But its masterstroke was the voluntary retirement scheme that nearly halved its staff strength from 9,631 in 2005 to 5,162 in 2012. Employees also had the option to move to K stores — a format that lets employees turn into franchisees, with a 7-8 per cent commission on sales.
“Bata in particular has been a comeback story in the last few years. They have updated the quality of retail ambience; the stores now look contemporary and the product range has expanded,” says Singhal.
The results are showing. The company’s net profit for the January-March 2014 quarter was Rs. 39.4 crore, with sales at Rs. 495.12 crore. In contrast, Liberty faces a long road ahead. While it is back to making profits (Rs. 4.27 crore) alongside rising sales (Rs.142.05 crore), these are modest in comparison with Bata during the same period. During FY14, its net profit was Rs. 13.21 crore, a third of what Bata made in just three months. And to think that at one time, around 2000, Liberty was considered the only real competition and threat to Bata.
For the young
Gupta is all too aware of the challenges. Liberty has 450 franchisee cash-and-carry stores and 100 company-owned outlets. “We opened 100 stores in each of the last two years. We want to add 50-100 stores each year, half of them franchisees and the rest company-owned,” he says.
With Rs. 1 crore as the average annual sales per store, Gupta is keen to hit the Rs. 1,000-crore target in the next couple of years. Side by side, the company has launched its online store and tied up with e-commerce players such as Flipkart and Jabong. And its focus is the youth. Says Gupta, “Liberty will never be a luxury brand. We’ll be a youthful, fashion-centric brand with affordability as a key criterion.”
(Published in The Hindu BusinessLine.)
Nikita Garia, Mihir Dalal, MINT (A Wall Street Journal Partner)
New Delhi, 26 June 2014
Cab services provider Uber announced the launch of its low-cost cab brand UberX in Bangalore, New Delhi and Hyderabad to directly compete with local rivals such as Meru Cabs, Ola Cabs and others.
Uber launched in India last August with its higher priced, luxury car service, UberBLACK that charged a minimum of Rs.250 per ride. Though the company, which accepts payments only through credit cards, reduced fares later, they were still at least 50% higher, on average, than those of rivals such as Meru Cabs and Ola Cabs.
UberX will offer a base fare of Rs.50, and also charge Rs.1 per minute and Rs.15 per kilometre. The charges will vary based on the city, but the fares are similar to those offered by local rivals.
Analysts said the move by Uber reflects the need for brands to offer lower-cost but so-called “value” products that Indian consumers typically prefer. Foreign companies such as Amazon, McDonald’s and others have had to approach India as a distinct market and “localize” their products and services to appeal to Indian shoppers.
“We are a cost and value-conscious country. Value is more than low cost,”said Devangshu Dutta, chief executive at Third Eyesight, a consultancy. “Our service expectations are very high. Any company which is looking at the Indian market whether it is a product or service company, has to modify its approach, adopt different strategies and tactics to make its Indian business a success.”
Despite launching a lower-priced service, Uber still misses out on a significant part of the market as credit card usage is low in India and a majority of customers still prefer paying cash, an executive at an Uber rival said.
“Uber has only a credit card-based mobile app and no call centres,” said Aprameya Radhakrishna, co-founder, of TaxiForSure.com. “You can only go for immediate bookings. So they will have limited reach in the market. Let us see how they perform once they get into the lower end of the market.”
Uber is running a promotional campaign to boost sales, where a first-time user can get Rs.500 off on the first UberX ride.
The Google Inc.-backed start-up that started its operations in 2009 is present in 39 countries. In India it offers its services in Bangalore, New Delhi, Hyderabad, Chennai, Mumbai and Pune.
Uber, which does not own cars, uses state-of-the-art technology to connect drivers with passengers through a mobile app.
The radio taxi market is moving towards an asset-light model where websites such as TaxiForSure.com lend their brand to drivers and cab operators in exchange for a fee. Meru, too, has become part cab operator, part marketer.
(Published in MINT.)
Anshul Dhamija, The Times of India
Bangalore, 25 June 2014
Tech tycoon and Wipro chairman Azim Premji is a hidden dragon springing out an impressive fast-moving consumer goods (FMCG) story in Asia’s new tiger economies, knocking close on the heels of global powerhouses Unilever and Proctor & Gamble (P&G).
Billionaire Premji’s Wipro Consumer Care and Lighting (WCCLG) is now among the top three personal care companies in Malaysia and Vietnam and is gaining ground in China’s southern provinces. Sixty-eight-year old Premji — with personal wealth topping $15 billion — took the FMCG unit private through a de-merger of non-IT businesses, which are housed under Wipro Enterprises.
"Our internal estimates suggest that Unilever is number one in personal care in Malaysia followed by us. We are currently placed number three behind Unilever and P&G in Vietnam’s personal care market," Wipro Consumer Care & Lighting President Vineet Agarwal told TOI.
In Malaysia, which is among the top three South East Asian economies, Wipro enjoys market leadership in facial cleansers (27%), facial moisturizers (26%), fragrance (22%), talc (51%) and kids toiletries (60%)."We are also the number one with a 50% market share in halal toiletries," added Agrawal, a Wipro veteran who has overseen the company’s inorganic expansion globally.
Wipro Consumer generates more than 50% of its revenue from international markets through a string of acquisitions boosting its foot print across south east Asia, Middle East and Africa. In doing so, it notched up Rs 5,000 crore revenues in FY14, becoming the third largest India born FMCG major after Godrej Consumer Products (Rs 7,602 crore) and Dabur (Rs 7,094 crore).
WCCLG’s revenue grew 16 times from Rs 304 crore reported 13 years ago. It went past Marico’s consolidated revenue of Rs 4,686 crore in the last fiscal. India and international markets posted similar growth giving the Wipro unit 17% revenue growth and 11.4% expansion in operating profit.
"Wipro has been a successful consumer products company. However, the consumer business got lost in the shadow of its bigger and sexier IT business. The origins of Wipro are in consumer products and that is hidden in its name, which is an acronym," said Devangshu Dutta of Third Eyesight, a consultancy firm.
Wipro – Western India Products Limited was set in 1945 to manufacture vegetable and refined oils, which the company has exited from.
Over the last decade Wipro has spent more than $500 million acquiring international brands like Yardley, Woods of Windsor and Enchanteur among others. "Malaysia is our biggest international market for us followed by China, Vietnam, with Indonesia and Middle East almost at same levels. We are in all developing countries in Southeast Asia and want build in these countries," added Agrawal.
Santoor with revenues of around $240 million (roughly Rs 1,500 crore) is still the biggest brand in WCCLG portfolio, followed by Enchanteur ($130 million), Yardley ($50 million), halal brand Safi and skincare brand Bio-essence (at $50 million each). Enchanteur, Bio-essence and Romano (a male toiletry brand) are market leaders in ASEAN countries.
Agarwal is focused on improving the China show, an ambitious play which no other Indian FMCG company has dared till now. "We are buoyant on China because it’s a country that’s still developing, it’s a large market and if you can play your cards right you can make money there and expand," said Agarwal.
(Published in The Times of India.)