Aggregator models and hyperlocal delivery, in theory, have some significant advantages over existing business models.

Unlike an inventory-based model, aggregation is asset-light, allowing rapid building of critical mass. A start-up can tap into existing infrastructure, as a bridge between existing retailers and the consumer. By tapping into fleeting consumption opportunities, the aggregator can actually drive new demand to the retailer in the short term.

A hyperlocal delivery business can concentrate on understanding the nuances of a customer group in a small geographic area and spend its management and financial resources to develop a viable presence more intensively.

However, both business models are typically constrained for margins, especially in categories such as food and grocery. As volume builds up, it’s feasible for the aggregator to transition at least part if not the entire business to an inventory-based model for improved fulfilment and better margins. By doing so the aggregator would, therefore, transition itself to being the retailer.

Customer acquisition has become very expensive over the last couple of years, with marketplaces and online retailers having driven up advertising costs – on top of that, customer stickiness is very low, which means that the platform has to spend similar amounts of money to re-acquire a large chunk of customers for each transaction.

The aggregator model also needs intensive recruitment of supply-side relationships. A key metric for an aggregator’s success is the number of local merchants it can mobilise quickly. After the initial intensive recruitment the merchants need to be equipped to use the platform optimally and also need to be able to handle the demand generated.

Most importantly, the acquisitions on both sides – merchants and customers – need to move in step as they are mutually-reinforcing. If done well, this can provide a higher stickiness with the consumer, which is a significant success outcome.

For all the attention paid to the entry and expansion of multinational retailers and nationwide ecommerce growth, retail remains predominantly a local activity. The differences among customers based on where they live or are located currently and the immediacy of their needs continue to drive diversity of shopping habits and the unpredictability of demand. Services and information based products may be delivered remotely, but with physical products local retailers do still have a better chance of servicing the consumer.

What has been missing on the part of local vendors is the ability to use web technologies to provide access to their customers at a time and in a way that is convenient for the customers. Also, importantly, their visibility and the ability to attract customer footfall has been negatively affected by ecommerce in the last 2 years. With penetration of mobile internet across a variety of income segments, conditions are today far more conducive for highly localised and aggregation-oriented services. So a hyperlocal platform that focusses on creating better visibility for small businesses, and connecting them with customers who have a need for their products and services, is an opportunity that is begging to be addressed.

It is likely that each locality will end up having two strong players: a market leader and a follower. For a hyperlocal to fit into either role, it is critical to rapidly create viability in each location it targets, and – in order to build overall scale and continued attractiveness for investors – quickly move on to replicate the model in another location, and then another. They can become potential acquisition targets for larger ecommerce companies, which could acquire to not only take out potential competition but also to imbibe the learnings and capabilities needed to deal with demand microcosms.

High stake bets are being placed on this table – and some being lost with business closures – but the game is far from being played out yet.

Panel Discussion moderated by Mr. Devangshu Dutta, Chief Executive, Third Eyesight at the Indian Retail Congress 2015 (17-18 April 2015). The panel included Mr. Manish Mandhana (Managing Director of Mandhana Industries with the brand Being Human), Mr. Sanjay Warke (Country Head of Toshiba India), Mr. Tanmay Kumar (Chief Financial Officer of Burger King India), Mr. Kinjal Shah (Chief Executive Officer of Crossword Bookstores) and Mr. Ranjan Sharma (Chief Information Officer of Bestseller India, with the brands Vero Moda, Only, Jack & Jones).

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.)

The dark clouds of recession and rain seem to be lifting just a little bit. Governments have been energetically throwing seeds of stimulus and economists are eagerly spotting “green shoots”. The festive season is around the corner, with anticipation of higher sales.

So perhaps it is time to cheer. Or perhaps not.

In the recessionary environment during the last year or so, ‘cutting back’ rather than ‘building’ has been the philosophy for most businesses.

The implications of these cut-backs are not always visible in the place you have originally made the cuts. But, unfortunately, they inevitably impact the area which should be the last to be touched: customer experience!

The problem arises not so much from the cut-back. Obviously if the business prospects are looking negative or less positive, the management needs to adjust its expectations and also its expense and investment framework.

No, the problem lies in the fact that most such initiatives are internally focussed. Whether it is supply chain (“lean inventory”), operating strength (“fewer people”), merchandise rationalisation (“narrower range and fewer brands”), the implications and benefits that are identified are mostly internal to the business. The driving philosophy is that “a penny saved is a penny earned”.

During the navel-gazing we forget the fundamental principle that the purpose of a business is to deliver a set of goods or services to meet the customer’s needs and expectations; if those needs are not served, the business interest is not served either.

Here are a few examples from the recent past:

• A modern retail chain has no stock of bread and basic cooking oil on the second afternoon of a 3-day long weekend. When asked, one of the sales associates says that they got no deliveries due to the holiday the previous day. When you walk across to the traditional kirana store, it is fully stocked-up with fresh merchandise, and apparently has had no delivery problems at all from the same brands either the previous day or that morning itself. Someone at the “organized” retailer seems to have forgotten that “lean” shouldn’t mean reduced footfall-conversion.
• A telephone service provider receives a complaint for a faulty line. The provider promises to rectify the complaint within 6 hours. After 6 days the line is still down. The call centre executives on multiple follow-up calls sound helpless – one even says: “Maybe the complaint did not get across to the service engineer.” One of them – maybe it is only to push the responsibility off to another part of the organization – hints at the unavailability of enough field staff.
• An elderly couple in a well-established large retail store is very clear that they only want to buy 100% cotton products. The enthusiastic sales associate pushes the store’s own heavily advertised brand of T-shirts, assuring the customer that it is cotton. After the first wear and wash the customer sends one of the T-shirts for ironing, only to have it returned with a large burn – the fabric, apparently of synthetic fibre rather than cotton, has not been able to withstand the ironing. Somewhere, someone has cut corners – it could have been the buying executive who wanted to meet a price point target, or it could have been the HR manager who thought that product training was a superfluous expense, or both.

These are all companies that have spent millions on store-fronts, real estate, IT systems, brand logos and hip advertising. After all, those are the visible vehicles for the brand and the brand promise.

Unfortunately, because of the internal disconnect between the strategic intent and the operational reality, these millions are now dripping down the drain, one customer relationship at a time.

Which brings me to one significant area of concern – the people who interface with the customer.

In western economies, due to the high cost of manpower, consumer-facing businesses are run on the basis of highly system-driven processes, lean staffing and a self-help orientation, whether the customer is interfacing with a call-centre or with a physical retail store. There are also significant cultural and infrastructure differences that make these models work in those economies.

In modernising countries such as those in Asia, it is quite understandable that the new consumer-facing companies are trying to emulate western “best-practice” models. However, often they falter on two accounts.

Firstly in these relatively hierarchical societies, customers don’t want to feel “help-less”. They may not exactly enjoy an intrusive sales associate, but they enjoy even less the feeling that there is no one around who can help when they want it. A number of retailers have failed this “quantity” test in the last few months.

Secondly, it is not just a “warm body” that is needed to ask a polite question and smile brightly, but someone who is empowered and feels accountable to solve the customer’s specific issue. That is a “quality” issue. Part of it is related to the huge gap between the personal context of most consumer-facing staff and their customers’. The other, significant, issue is the culture of accountability – that the salesperson or the service executive makes the effort to understand and solve the customer’s problem, rather than only focussing on following the law laid down in the operating manual. These needs can only be addressed through training – lots of it, and repeated liberally – and creating a culture that, top to bottom, is focussed on the customer.

Analysts have said that recessions are a great time for the good companies to separate themselves from the rest. That is true to an extent.

However, I believe that in recessions many companies, bad or good, suffer due to circumstances beyond their control – it is in the recovery after the recession that is a much tougher filter.

When the customer’s mood is beginning to move up, so are his or her expectations. Companies that have not cut muscle along with the fat, companies that have not only focussed on themselves in the downturn but have remembered the customer at all times, are the ones which will manage to retain their customer relationships. And will grow faster.

Retailwire.com prompted a discussion on what, if anything, should grocers and other stores be doing to accommodate the growth in stay-at-home dads?According to the US Bureau of Labor Statistics, the recession is putting more men out of work than women, which has led to an increase of stay-at-home dads who are increasingly taking on the traditional women’s roles of childcare, housework, school life, and shopping.

Here’s my contribution to the Dad wishlist: salespeople who don’t look down their noses when asked a (“stupid”) question Mom would never have dreamt of asking. (Also, considering this is the gender that apparently never stops to ask for directions, please treat the question as close to a life-or-death emergency.)