G Seetharaman, The Economic Times
New Delhi, 10 August 2014
It turns my stomach. It’s a bad customer experience," says Michael Adnani, vice-president of retail at Flipkart, about its website crashing on August 5.
The third batch of 15,000 Xiaomi Mi3 phones, of which Flipkart is an exclusive seller, had been lapped up in all of two seconds. The site had also gone down on July 22, when the first bunch of Xiaomi Mi3 phones were sold in under 40 minutes, and on May 14 when Moto E went on sale on the site. Flipkart has sold over a million units of Moto G, Moto E and Moto X, all available only on its portal, since February, and 35,000 units of Xiaomi Mi3 which saw ten times as many people pre-registering for the first two flash sales (the figure for August 5 is not public yet).
Partnering with brands to be their exclusive sales partner seems to be the flavour of the season for e-commerce companies. Amazon, the world’s largest online retailer, earlier this week announced that it would be the sole seller of Microsoft’s interactive entertainment products in India, including the latest version of its gaming console, Xbox One, which will be available on September 23, and for which Amazon has started taking pre-orders.
Amazon had in July inked a similar agreement with Samsung for its Galaxy K Zoom phone, and with low-cost Indian mobile handset maker Karbonn a month earlier for its Titanium Hexa. But given the might of brick-and-mortar stores, most of these brands might find it difficult to completely ignore them in the long run. Organized retail, after all, is 20 times as big as online retail, and even with the rapid growth of the latter, will be nearly five times as large in 2020.
While brand exclusivity is not new to e-commerce firms — and certainly not to retailers — the trend has snowballed since the success of Motorola’s partnership with Flipkart to make a reentry into India. Motorola, which Google bought for $12.5 billion in 2011 and sold to Chinese computer-maker Lenovo for $2.91 billion in January this year, while retaining most of its patents, has since edged past Nokia to become the fourth largest smartphone maker in India. According to Counterpoint Technology Market Research, in the April-June period, Motorola’s market share was 4.3%, behind Samsung’s 25.3%, Micromax’s 19.1% and Karbonn’s 5.9%.
Adnani says while Flipkart had exclusive tie-ups with companies before, the Motorola partnership was the first one where the exclusivity applied to the brand’s entire portfolio, including accessories like phone covers. "Discussions with Motorola started about 90 days before the launch of Moto G on February 6," he says. He adds that higher margins are not the reason for these exclusive partnerships."We are able to plan the products as we see fit for the Indian consumer."
Saloni Nangia, president of Technopak, a consultancy, says it would have been difficult for Motorola to create a conventional distribution network for Moto G. Exclusive partnerships may entail promotion by the e-tailer.
"From the brands’ point of view, the big win [of an exclusive partnership] is the huge amount of visibility they get because it is in the interest of the ecommerce partner to provide that extra push," observes Devangshu Dutta, chief executive of Third Eyesight, a retail consultancy.
Tony Navin, senior V-P of electronics at Snapdeal, says a brand could save 8-20% by taking the online-only route.
For e-tailers, Dutta adds, exclusive partnerships are a way to create differentiation. "In the past 2-3 years, their growth has come from discounting which is not sustainable." If a portal is the only seller of a product, consumers cannot compare prices on different websites and even at retail stores.
Having said that, Indian e-tailers would do well to learn from some unsavoury fallout of exclusive partnerships abroad.
The Flip Side
When American singer Beyonce launched her selftitled album only on iTunes late last year, Amazon and supermarket chain Target refused to stock CDs of the album.
Back home Nilesh Gupta, managing partner of Vijay Sales, an electronics store chain, says he has no option but to play hardball with companies sometimes. "If two out of a company’s 10 products are doing very well, and they are both exclusive to an online retailer, I will tell the company to take the other eight online too." When renowned literary agent Andrew Wylie, who represents Philip Roth and Salman Rushdie, in 2010 announced that e-books of classics like John Updike’s Rabbit series and Vladimir Nabokov’s Lolita would be available only on Amazon, publishers protested saying they owned the electronic rights to those books.
Talking of books and exclusive deals, Rupa Publications has signed an exclusive agreement with Flipkart to take pre-orders and sell bestselling author Chetan Bhagat’s upcoming book, Half Girlfriend, available from now to a month after its October release. Kapish Mehra, MD of Rupa, says Flipkart is only the exclusive online partner and that the book would be available at physical bookstores from the day of its release. "Everytime you do something innovative and different, it gets people talking. We saw it with the announcement itself, which generated a lot of buzz," says Bhagat.
Riding the Boom
The online retail market in India is expected to grow from just $2.3 billion, or 0.4% of the country’s overall retail market in 2014, to $32 billion, or 3% of the retail market in 2020. In the same period, the share of organized brick-and-mortar stores is set to rise from 8.4% to 14% (unorganized retail will still dominate).
While Motorola is used to selling at physical stores, four-year-old Xiaomi sells only online and did not want to alter its strategy in India. "We save a huge amount of margin by selling online which we then pass on to customers. Also, we don’t do promotions because the customer ends up paying for it," says Manu Jain, head of Xiaomi India. Xiaomi Mi3 is priced at Rs 13,999. "We chose Flipkart as an exclusive partner because of their technology and their track record in delivery and solving customer problems," says Jain. Flipkart was recently valued at $7 billion in a $1-billion fund-raising round.
Exclusive partnerships have now gone beyond mobile phones, with Myntra, which Flipkart bought in May, bagging the exclusive rights to SuperDry footwear and accessories collection, and Amazon being the sole launch partner for Whirlpool’s KitchenAid appliance range. Among the most prominent brands, Amazon now has Xbox One in its ‘exclusive’ portfolio.
Anshu Mor, director, interactive entertainment business of Microsoft India, said unlike mobile phones the market for gaming consoles in India is underdeveloped: "There is not enough awareness on what all you can do with a console. We have not been able to address that offline, and the youth audience we are targeting is natively digital." He adds that Microsoft chose Amazon as it was still in "market creation mode" and hence wanted to have just one partner to drive a concentrated effort in creating awareness about the product. Kumar says Microsoft and Amazon look to tap 6 million potential users of high-end console gaming.
Xbox One retails for Rs 39,990. While the Indian gaming industry is set to double in size to Rs 4,200 crore by 2017, the share of consoles will likely slip from 50% to 45%, thanks to the increasing popularity of mobile gaming. Globally, investors have been calling for Microsoft to junk Xbox, owing to its struggle against market leader Sony PlayStation.
The Online Advantage
Among the aces up the e-tailers’ sleeve is the data they have on purchase patterns by demography and geography. "If an exclusive launch is doing well in the north and not in the south, you can devise deals and promotions accordingly. In offline sales, that data will take a few days to come while here it is immediate," says Navin. What is common to brands like Motorola and Xbox is that they are trying to establish or restablish their presence in the market.
"Any e-tailer who is pragmatic would not expect long-term exclusivity. As a brand scales up and becomes more desirable, it has no option but to be available across multiple channels," says Dutta.
Exceptions to this could be brands like Xiaomi which are resolutely web-only. "If someone doesn’t have access to the internet today, they can just use their smartphone," says Amit Boni, general manager for India at Motorola Mobility.
However, Gupta of Vijay Sales feels Motorola’s smartphones should also be available at retail outlets soon, to which Boni says, "As of now this is an exclusive partnership. We would continue to sell our products through Flipkart in the foreseeable future." But, he also says that Motorola expects to have its products "widely available".
Even as more and more people, even in smaller cities, get comfortable with buying online, brick-and-mortar stores continue to grow and wield no small influence.
While several luxury brands have spurned online platforms in
favour of the actual store experience, brands whose USP is their
attractive pricing and who rely on volumes may have to reach customers
through as many avenues as possible.
(Published in The Economic Times.)