Shambhavi Anand, The Economic Times

New Delhi, 11 May 2016

Snapdeal has barred sellers on its platform from giving more than 70% discount on the maximum retail price on most products from May 13, as the ecommerce firm aims to tackle the increasing return of merchandise from buyers.

In a communication sent to sellers on May 9, the company said: “We have noticed deeply discounted products often do not meet expectations, leading to increased returns and customer dissatisfaction. To improve customer experience, you would not be able to list a new product or update the price of a listed product with more than 70% discount on MRP.”

Sellers on leading marketplaces, including Snapdeal, have been complaining of increased returns by buyers due to the “no questions asked” return policy of the ecommerce companies.

Increased returns is a logistical nightmare as inventory is stuck in transit for long time and also cause accounting errors, say sellers.

A Snapdeal spokesperson said this is a way to providing consumer insights and assisting the sellers in making a sale. “In this instance, we have shared with our sellers that any discounts that the consumers perceive as unrealistic may adversely impact the consumer perception about the quality of products,” the spokesperson said.

“Laying down the operating rules on our marketplace and providing market information is an ongoing activity. The price is determined by the sellers based on various inputs they may receive from multiple sources, including from us.”

According to Devangshu Dutta, chief executive of retail consultancy firm Third Eyesight, Snapdeal’s strategy might go down well with India’s new foreign investment policy in ecommerce. But sellers won’t like it. 

“The intent of the new ecommerce policy is clear. The government wants to control deep discounting. So the government may not have any problem with Snapdeal’s diktat. However, since this policy is influencing the prices, sellers could challenge it,” Dutta said.

As per the latest government guidelines, online marketplaces are not allowed to influence the price of goods and services directly or indirectly.

While some sellers say this is a “good move”, others see it as a hindrance when they try to clear piled up inventory. The All India Online Vendors Association, which represents medium-to-large sellers on various ecommerce platforms, said, “Snapdeal should discuss such policies with vendors before putting any cap on discounts.”

(Published in The Economic Times)

Richa Maheshwari, The Economic Times

Bengaluru, 8 May 2016

Ecommerce platform Snapdeal has integrated UrbanClap inventory in its Android mobile application to launch a personal services category, which will help consumers book services ranging from beauty services at home to wedding photographers.

Anand Chandrasekaran, chief product officer at Snapdeal, tweeted on Sunday: “Urbanclap 80+ services live on Snapdeal android app, joining Zomato, redBus, Cleartrip and Freecharge.”

In March, Snapdeal had launched a pilot programme under which it tied up with Redbus, Zomato and Cleartrip, allowing customers to book bus tickets, flight tickets, hotel tickets and food directly on the application. UrbanClap is a mobile marketplace for services ranging from house cleaning and plumbing to yoga training, beauty care and interior designing.

Such associations give companies like UrbanClap, Cleartrip, Zomato and redBus access to Snapdeal’s user base. Snapdeal gets a commission for each booking made through its platform.

Since personal service is a high frequency category, the tie-ups will also help Snapdeal increase the number of transactions on the platform. Air ticket bookings launched through Cleartrip is a large gross merchandise value (GMV) category, while food ordering through Zomato is a high-frequency category.

“Horizontals are looking at monetising their user base with a focus on GMV and repeat use cases. As funding environment becomes tougher, growth in these metrics will stand out,” a Snapdeal investor had said in March, requesting anonymity.

Recently, the Delhi-based ecommerce company tied up also with real estate developers such as TVS Emerald, Provident Housing and Runwal Group to launch real estate and financial services on its website.

The commissions received on such transactions are not clear. GMV is the overall sales by merchants on an ecommerce platform, without factoring in discounts, out of which an etailer gets 5-20% as margin on an average.

According to experts, ecommerce players are experimenting ways to monetise traffic through fewer cost-intensive models. “These are service-oriented offerings, which won’t take up any extra cost in terms of physical space or logistics and, hence, these players will make a better margin out of it,” said Devangshu Dutta, CEO at retail consultancy firm Third Eyesight. 

(Published in The Economic Times)

Third Eyesight’s CEO, Devangshu Dutta recently participated in a discussion about the phenomenal growth of the Patanjali brand, from yoga lessons to a food and FMCG conglomerate taking well-established multinational and Indian competitors head-on. In a conversation with Zee Business anchor, P. Karunya Rao and FCB-Ulka’s chairman Rohit Ohri, Devangshu shared his thoughts on the factors playing to Patanjali’s advantage. Excerpts from the conversation were telecast on Brandstand on Zee Business:

Rashmi Pratap, The Hindu Businessline

Mumbai, 6 May 2016

When the 119-year-old Godrej group decided to go for an image makeover eight years ago, it roped in international advisory Interbrand for a valuation of its brand. The idea was to not just gauge the financial prowess of brand Godrej (valued at $3 billion by Interbrand in 2010) but also facilitate strategic decisions such as rejigging product portfolios and connecting more deeply with consumers. The valuation exercise and its diagnostics were a means to help grow the brand value.

On the other hand, for industrialist Vijay Mallya, the valuation of ₹4,100 crore for the Kingfisher Airlines brand served another purpose. The brand became the single largest collateral for loans exceeding ₹9,000 crore. That valuation, carried out by Grant Thornton in 2011, is now under scrutiny.

Mallya is certainly not alone in using a well-known brand to raise money. New Delhi-based LT Foods also used its Daawat rice brand to raise debt back in 2008-09.

As things stand, companies across sectors are opting for brand valuation to meet various objectives. The hospitality sector, including hotel chains and airlines, is using it to improve customer connect while the engineering sector focuses on intangible value creators like intellectual property (IP) and research and development. The biggest users, however, are the FMCG and consumer durables firms, which seek to unlock their brand portfolio and optimise marketing investment.

“Consumers today have far more choices and their attention is divided. Brands need to cut through this. Moreover, the cost of marketing is escalating and is a big consideration when introducing a new brand or extending an existing one,” says Shireesh Joshi, COO, strategic marketing group at Godrej. Brand valuation allows the company to assess the brand’s strength, both qualitatively and quantitatively, by putting a science behind it. This, in turn, impacts the company’s strategic decisions including international forays or acquisitions.

Parts of a brand

Brands include the names, terms, signs, symbols and logos that identify goods, services and companies. But brand value is not just a financial number. “It is a measure of several factors like loyalty of customers, the ability of a brand to keep offering newer products and technology, and the connect with consumers, who give it a premium,” says Ajimon Francis, India head and CEO for global brand consultancy Brand Finance.

“A brand is an image, comprising a bundle of promises on the company’s part and expectations on the consumer’s part that have been met. If a customer perceives a higher value in a brand, she will be ready to pay a premium for it,” says Devangshu Dutta, chief executive of consultancy Third Eyesight.

The UK’s Reckitt Benckiser knows this all too well. In 2010, it paid ₹3,260 crore to buy Ahmedabad-based Paras Pharmaceuticals, the maker of brands like D’Cold, Krack and Moov. The deal valuation was eight times Paras’s sales of ₹401.4 crore and largely attributed to the strength of the company’s key brands.

Interbrand MD Ashish Mishra says brand is a key factor in calculating the premium pricing in M&As. “Often, it is the latent potential of the brand that is driving this premium, through its ability to enter new markets and extend into adjacent categories. A broad skill set — combining market research, brand, and business strategy with business case modelling — is required to quantify the latent financial potential of the target brand,” he says.

Additionally, the brand valuation methodology can be used to complement the other processes involved in setting royalty rates. “By identifying the value created by a brand for its business, combined with an evaluation of the relative bargaining power of the parties involved, we can determine the proportion of brand value that should be paid out as a royalty rate in return for the right to exploit the brand,” he adds.

A case in point is the Tata group. Brand Finance had valued the Tata brand at ₹1.3 lakh crore in 2015. While Tata Sons, the brand’s owner, has not valued it, group companies have to pay royalty for using it. Under a 1996 agreement, Tata Brand Equity and Business Promotion companies using the Tata name directly pay 0.25 per cent of the annual revenue or 5 per cent of the profit before tax, whichever is less, as royalty. Companies using the brand indirectly pay 0.15 per cent of the turnover. The overall annual payout has now been capped at ₹75 crore.

Through thick and thin

While Mallya may have made the cleverest use of brand valuation, the Godrej group used it to the hilt to reposition itself and connect better with youth. It came up with the new proposition of ‘Brighter Living’ in 2008 and launched newer products like door cameras, air fresheners and personal repellents to target younger consumers. More importantly, the valuation exercise helped Godrej reinvent its design language. “For long, Godrej has been known to be a sturdy engineering brand and one of the important directions it needed to become much stronger was emotional attachment with its customer base,” says Joshi.

Over the last few years it has greatly focused on design across its divisions and offerings, be it Godrej properties, furniture or consumer products. “Great design, in addition to great function, ends up creating a great bond with consumers. The valuation exercise added scientific support to what people had been feeling all along,” he adds.

Not just in stepping up business, brand comes into play equally in shutting down unviable ones, as Raymond did with its Zapp! kidswear brand. Launched with much fanfare in 2006, the brand didn’t take off as the market was not ready to pay premium pricing (starting at ₹2,000) for kidswear.

“Brand valuation helps the management understand how a brand is moving along with other brands and whether it is able to keep pace. They can accordingly decide its future,” says Francis.

For a reliable yardstick

Despite the growing need for brand valuation, there is no standard methodology in use.

The ISO 10668 standard specifies a framework for brand valuation, including objectives, bases and methods of valuation besides sourcing of data and assumptions. It also specifies methods for reporting the results of such valuation. But it remains a voluntary standard as of now.

“It is globally accepted by large valuation firms as well as regulators and financial institutions. But following it is a subjective matter,” says Francis.

His firm, Brand Finance, follows the Royalty Relief method, which determines the value a company would be willing to pay to license its brand as if it did not own it. It involves estimating the future revenue attributable to a brand and calculating a royalty rate that would be charged for the use of the brand.

Mishra points out that Interbrand’s valuation model has three core components — an analysis of the financial performance of the branded products or services, the role the brand plays in the purchase decision, and the competitive strength of the brand. “These are preceded by a decision on segmentation and, at the end of the process, are brought together to enable the calculation of a brand’s financial value,” he says.

But what happens when a company that mortgaged its trademarks with financial institutions to raise funds goes bust?

“This (Kingfisher case) is a unique situation… When a trademark is used as an asset for lending, one of the disciplines which global financial institutions follow is a rigorous tracking of the profit-and-loss account and cash flows of the company. If the business faces a setback, the value of the trademark falls drastically,” says Francis.

It appears then that due care was not taken in the Kingfisher case. Whether banks will ever recover the money from Mallya is not known. But what is certain is that financial institutions will now be more careful in setting much store by mere brand power.

After all, like any other power, this is liable to fluctuate too.

(Published in The Hindu Businessline)

Viveat Susan Pinto, Business Standard

Mumbai, 5 May 2016

Fabfurnish.com, the online furniture retailer acquired by Kishore-Biyani-led Future Group, was relaunched on Thursday with a fresh campaign and a slew of deals. It marks a new chapter in the evolution of the group, which is best known for kicking off the modern retail revolution in India a decade ago.

However, when Biyani, 54, laid his hands on the Rocket-Internet-promoted company last month, it did come as a surprise. The Marwari businessman has been a fierce critic of the e-commerce business model in India, saying it is designed to lure consumers with discounts with little focus on profits. He had told Business Standard earlier that he was waiting for the bubble to burst before he would make his moves.

That moment appears to have arrived. Fabfurnish is his first acquisition but more such deals could be in the offing. “I am not closed to the idea,” he says. “I will do it selectively and ensure our investments make money,” he adds.

It is clear the lines between physical and virtual shopping are blurring for him. In a press conference on May 4, he said he plans to merge the group’s home furnishings business under HomeTown with Fabfurnish and subsequently de-merge it from flagship Future Retail.

The goal is to unlock value and make his home furnishings business a stronger enterprise in the face of increased competition. Once the online and offline arms are merged, HomeTown is likely to reach a turnover of Rs 1,000 crore within a year. It closed the last financial year with revenues of around Rs 750 crore.

The driving force

Biyani’s hybrid business model, also called omni-channel retail in industry parlance, is a compulsion, say analysts. With consumers today spread far and wide, brick-and-mortar retailers have been left with no option but to add an online leg to their offline operations in a bid to reach as many customers as possible, and quickly.

Biyani has been at work on an omni-channel presence for a year now, trying to create a seamless and consistent brand experience across his group’s retail channels: bigbazaardirect, futurebazaar.com and offine stores. Other retailers, including Reliance Retail, Aditya Birla Retail and Shoppers Stop, have also been working on creating an omni-channel presence in recent months.

“The endeavour is to reach more consumer touchpoints and ensure you are there while the action is on. The ultimate objective is customer acquisition. That will mean that you have to go where he or she is,” says Devangshu Dutta, chief executive, Third Eyesight, a consultancy firm.

A recent study by the Retailers Association of India and Mumbai-based data analytics firm Hansa Cequity says that nearly 74 per cent Indians shop across all channels including neighbourhood stores, modern trade outlets and online platforms.

The study also notes that a significant number of these consumers still prefer to touch and feel products before buying, implying therefore that an online-only model is not enough.

Domestic e-tailers have picked up this cue. The top three e-commerce majors -Flipkart, Snapdeal and Amazon – have all gone offline in the last six to eight months to ensure the “touch and feel” experience is provided to consumers.

Flipkart, for instance, has tied-up with brick-and-mortar retailer Spice Hotspot to provide access to its exclusive range of phones offline. Its fashion arm Myntra is in advanced talks to acquire brick-and-mortar chain Forever 21, which will allow it to stock its online catalogue offline.

The same goes for rival Snapdeal, which has initiated tie-ups with The Mobile Store and Shoppers Stop for mobiles and apparel, respectively. Amazon, too, is tying up with small retailers across the country in a bid to allow consumers with no internet access to shop online in these outlets. It is also setting up Amazon-branded stores offline.

Additionally, the top three e-tailers have pick-up stores offline where consumers who’ve purchased products online can get delivery of their goods.

Dutta says the online-offline retail marriage follows global trends. “E-tailers abroad such as Amazon, Birchbox and Bonobos in the US, Spartoo in France, Astley Clarke in the UK have all opened physical retail stores in recent years. This completes the picture in a sense and plugs gaps if any,” he says.

Social media to retail

Hybrid business models are not restricted to retail alone. Social media giant Facebook recently entered hyper-local services in India, offering everything from medical and repair to business and personal services. Apart from letting users to browse for these services, the initiative also allows them to leave reviews so that other consumers can make the right choice.

Tech giant Google, too, is on a similar adventure. In recent years, it has ventured into making wearable tech devices, mobile phones and is now piloting driver-less cars. This even as it strengthens its presence online with a suite of services from basic search to online advertising, email, chat, browsing and software for phones.

Harish HV, partner (India leadership team), Grant Thornton India, says that hybrid business models for these companies is a way to ring-fence themselves from competition by marking their presence in virtually every space.

This online-offline merger, he says, will mean that these firms will get stronger as they enter new areas. The world is indeed shrinking.

(Published in Business Standard)