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:

Retailers seem to be fighting a losing battle against the growth of ecommerce, and it is only the nature of the shopping activity, especially for fashion – interactive, social, and immersive as it is – that has kept many retailers relevant and in business.

However, the defensive stance is changing, and now they’re using technology to get the customers back into the store. Forward-thinking retailers are reimagining trial rooms, stores, business processes and entire business models. It’s not a physical versus virtual approach but an approach that integrates both sides. The idea is to create a more immersive experience than pure digital retail can be, using some of the same tools as ecommerce.

It is important to remember that the whole retail environment is a “suggestive” environment. Due to cost and other operational factors most retailers are ill-equipped to provide appropriate levels of excitement, suggestion and support during the browsing and buying process.

For many, the simplest move could be screens serving up their catalogue to customers within the store. For instance, US department store chain Kohl’s has initiated connected fitting rooms that identify products the customer is carrying, and bring up not only those items onscreen, but additional colours and sizes that are available. If the customer wants an alternative, a message goes to a sales associate who can fetch the requested option. Macy’s and Bloomingdales are using tablets in the trial rooms, while Nordstrom, Neiman Marcus and Rebecca Minkoff are attempting to boost their fashion sales using magic mirrors to provide similar enablement. These devices and the processes empower and involve the customer far more, while leaving store staff free for other activities.

A step up, Puma is using “virtual trials” for its apparel products by having a customer take images of herself in specific positions, and then mapping styles on their own images to visualise how they might look. While this needs more work and investment, this is still only a more developed product browser technique from the customer’s point-of-view.

The next level, augmented reality trials and virtual fit, are significantly more sophisticated at creating simulations of a selected garment image draping and falling on the customer’s body even as he or she moves normally. Imaging and texturing of the simulated garments is technically challenging and expensive, repeated for each new style and option. The imaging also needs to mimic the “wearer’s” movements. Nevertheless, retailers such as Polo Ralph Lauren are finding it worth their while to investigate these new technologies, as these reintroduce the much needed “theatre” that are integral to a successful retailer.

For the customer virtualisation expands the number of items “taken” into the trial room, and creates more convenient product discovery. More products can be seen in the same shopping time, and sharing of images and videos with friends and family, engages them in the shopping process as well.

For retailers, the benefits multiply. Inventory can be optimised, and there is reduced handling and shrinkage. Even without sales associates, it is feasible to prompt for alternatives and related products, improving conversion and transaction values, reducing space and costs of physical trial rooms, and increasing the number of customers serviced especially at peak traffic times.

A phenomenal advantage is the data captured that is relevant while the customer is in the store, but which can be linked to future promotions. Valuable intelligence, such as what is being tried and for how long, can help the retailer to quickly gauge demand patterns, and adjust pricing and promotions. Normally retailers only capture sales transactions (post-fact), and miss out the rich information on in-store behaviour that etailers do collect and analyse.

However, massive hurdles to virtualisation remain, including data input accuracy, product accuracy, and the technical capabilities of the tech solution adopted. A bigger concern is whether technology is intuitive and seamless, or whether it gets in the way of the shopping experience. Further, consumers do have privacy concerns about the images and other data collected.

Its important to remind ourselves that, on its own, technology is just a novelty – huge transformation of business processes, organisational capabilities and behaviours must happen as well.

That is perhaps the biggest mountain to climb.

Devina Joshi, Financial Express

Mumbai, 8 September 2015

E-commerce, as we know it, is old news. Hyperlocal is the hot new buzzword in retail hallways, going by the recent spate of well-funded launches in this space. There is already a wide range of services on offer, from grocery delivery to home, office and personal care services. Hyperlocals, services-based or inventory-based, are largely an urban India phenomenon. Services are hyperlocal by their very nature, driven by locality or communities. When moving into a new city, for example, people would like to stabilise as quickly as possible and here, such services step in.

To put the whole picture in context, the Indian retail industry is worth $500-600 billion. Of this, grocery items account for about 67% of the revenue. However, in case of fast moving consume goods (FMCG) and grocery, modern retail formats account for less than 10% of the total sale. E-commerce or hyperlocals are obviously a tiny part of the pie just yet. Most companies, therefore, are still at a stage where they have to prove their business models and change consumer behaviour.

While on-demand grocery delivery—the model that players such as Grofers ride on—has immense potential in this space, other high potential categories include delivery of services (such as supplying peons/delivery boys, specialised laundry services, plumbers or electricians), price comparisons, food ordering apps, etc.

Hyperlocal startups in India

It is a no-brainer that an aggregation model, since it is asset-light, is less capital-intensive than the inventory-led one. Moreover, it is easier to scale up such a model. The new generation of hyperlocal start-ups is coupling aggregation with logistics/delivery, thus controlling even the last mile.

Take Zopper, a product-based hyperlocal which started off as a price comparison website for electronics but now is a platform for purchasing products from offline stores. It counts on faster delivery through tie-ups with local shops near a buyer. “City by city, we need to bring more merchants on board, and all they have to do is download an app and their product can be listed on Zopper,” says Neeraj Jain, CEO, Zopper. The company’s margins vary from 2-8%.

Home services start-up Taskbob, founded by Aseem Khare, charges a 20% commission from its servicemen. Product price comparison website MySmartPrice works on commission too, while providing a free six-month on-board period to offline sellers, where they can use the platform for gaining traction. The revenue model of BookMeIn, another home services company, includes a monthly subscription fee for a SaaS-backed system given to service providers to manage their business. Further, it gets revenues on leads/bookings done by customers on the website, along with revenues through ads of service providers. So what’s working in their favour?

A fertile environment

Indian retail is still dominated by brick-and-mortar stores, which, oddly, is an opportunity in disguise for hyperlocal players. Unlike non-hyperlocal e-commerce, these start-ups are not really competing with offline retailers, but are partnering them instead.
Hyperlocal business models spell instant, on-demand delivery as they cater to needs of a more immediate nature. The gratification is far more accelerated – the entire transaction can be completed in an hour sometimes. Customers also tend to trust hyperlocals more than non-hyperlocal e-commerce websites, as the stores they buy from through online platforms have a physical presence, making it possible to attend to any grievances quickly. Further, the start-up can tap into existing infrastructure, acting as a bridge between existing retailers and the consumer.

“Due to the convenience factor, by being able to tap into consumption opportunities that might have otherwise been missed, the aggregator can actually drive new demand to the retailer in the short term,” says retail consultant Devangshu Dutta, chief executive, Third Eyesight.

Within hyperlocals, services have higher margins of around 20% as opposed to product based models which earn 2-10% margins or even non-hyperlocal e-commerce companies, which operate on 3-7% margins, depending on the category.

This is because there is virtually no warehousing, inventory management or logistics involved in a services hyperlocal. Within services, food-ordering apps have an added advantage of the frequency of purchase as opposed to, say, e-commerce products. “The category is a high-repeat one as opposed to home repair for example,” says Saurabh Kochhar, co-founder and CEO, India, and chief business officer, global, Foodpanda.

A word of caution

While it ensures higher margins, replication of a services model is much more difficult. Training of people in services is very difficult as each individual has to be available wherever the customer is located. “Second, when a product delivery happens, I need local people to deliver it but if a person is coming to give a service, he represents your brand and should know how to handle a customer,” says Alagu Balaraman, partner and MD, Indian operations, CGN Global India, a supply chain management consulting firm.

Third, as the services industry is rather fragmented, it is difficult to form partnerships with associations or groups of such service providers, as specialists are spread out across the country. Fourth, creating a need for services might be difficult as people may already have their own local set-up in place. “But that mindset is changing, with a large group of urban people who don’t have the time or patience and need professional services,” he says.

The biggest learning will be the capability to scale. A hyperlocal that focuses on a single ‘locality’ will find it difficult to get the scale needed to create an economically viable model. Being able to identify a widespread but local need, and having a model that adapts to each new market will be crucial.

(Published in Financial Express.)

(The Hindu Businessline – cat.a.lyst got marketing experts from diverse industries to analyse consumer behaviour during the last one month and pick out valuable nuggets on how this could impact marketing and brands in the years to come. This piece was a contribution to this Deepavali special supplement.)

Two trends that stand out in my mind, having examined over two-and-a-half decades in the Indian consumer market, are the stretching or flattening out of the demand curve, or the emergence of multiple demand peaks during the year, and discount-led buying.

Secular demand

Once, sales of some products in 3-6 weeks of the year could exceed the demand for the rest of the year. However, as the number of higher income consumers has grown since the 1990s, consumers have started buying more round the year. While wardrobes may have been refreshed once a year around a significant festival earlier, now the consumer buys new clothing any time he or she feels the specific need for an upcoming social or professional occasion. Eating out or ordering in has a far greater share of meals than ever before. Gadgets are being launched and lapped up throughout the year. Alongside, expanding retail businesses are creating demand at off-peak times, whether it is by inventing new shopping occasions such as Republic Day and Independence Day sales, or by creating promotions linked to entertainment events such as movie launches.

While demand is being created more “secularly” through the year, over the last few years intensified competition has also led to discounting emerging as a primary competitive strategy. The Indian consumer is understood by marketers to be a “value seeker”, and the lazy ones translate this into a strategy to deliver the “lowest price”. This has been stretched to the extent that, for some brands, merchandise sold under discount one way or the other can account for as much as 70-80 per cent of their annual sales.

Hyper-opportunity

This Diwali has brought the fusion of these two trends. Traditional retailers on one side, venture-steroid funded e-tailers on the other, brands looking at maximising the sales opportunity in an otherwise slow market, and in the centre stands created the new consumer who is driven by hyper-opportunism rather than by need or by festive spirit. A consumer who is learning that there is always a better deal available, whether you need to negotiate or simply wait awhile.

This Diwali, this hyper-opportunistic customer did not just walk into the neighbourhood durables store to haggle and buy the flat-screen TV, but compared costs with the online marketplaces that were splashing zillions worth of advertising everywhere. And then bought the TV from the “lowest bidder”. Or didn’t – and is still waiting for a better offer. The hyper-opportunistic customer was not shy in negotiating discounts with the retailer when buying fashion – so what if the store had “fixed” prices displayed!

This Diwali’s hyper-opportunism may well have scarred the Indian consumer market now for the near future. A discount-driven race to the bottom in which there is no winner, eventually not even the consumer. It is driven only by one factor – who has the most money to sacrifice on discounts. It is destroys choice – true choice – that should be based on product and service attributes that offer a variety of customers an even larger variety of benefits. It remains to be seen whether there will be marketers who can take the less trodden, less opportunistic path. I hope there will be marketers who will dare to look beyond discounts, and help to create a truly vibrant marketplace that is not defined by opportunistic deals alone.

(Published in ETRetail.com on 6 December 2013)

Franchising isn’t rocket science, but advanced space programmes offer at least one parallel which we can learn from – the staging of objectives and planning accordingly.

A franchise development programme can be staged like a space launch, each successive stage being designed and defined for a specific function or role, and sequentially building the needed velocity and direction to successfully create a franchise operation. The stages may be equated to Launch, Booster, Orbiter and Landing stages, and cover the following aspects:

1. Launch: assessment of the franchiser’s own readiness to launch and manage a franchise network in the target geography
2. Booster: having the franchise pack ready to target the appropriate geographies and franchisee profile
3. Orbiter: franchisee recruitment
4. Landing: operationalising the franchise location

Stage 1: Launch

The first and perhaps the most important stage in launching a franchise programme is to check whether the organisation is really ready to create a franchise network. Sure, inept franchisees can cause damage to the brand, but it is important to first look at the responsibilities that a brand has to making the franchise network a success. Too many brands see franchising as a quick-fix for expansion, as a low-cost source for capital and manpower at the expense of franchisee-investors. It is vital for the franchiser to demonstrate that it has a successful and profitable business model, as well as the ability to provide support to a network of multiple operating locations in diverse geographies. For this, it has to have put in place management resources (people with the appropriate skills, business processes, financial and information systems) as well as budgets to provide the support the franchisee needs to succeed. The failure of many franchise concepts, in fact, lies in weakness within the franchiser’s organisation rather than outside.

Stage 2: Booster

Once the organisation and the brand are assessed to be “franchise-ready”, there is still work to be put into two sets of documents: one related to the brand and the second related to the operations processes and systems. A comprehensive marketing reference manual needs to be in place to be able to convey the “pulling” power that the brand will provide to the franchisee, clearly articulate the tangible and intangible aspects that comprise the brand, and also specify the guidelines for usage of brand materials in various marketing environments. The operations manual aims to document standard operating procedures that provide consistency across the franchise network and are aimed at reducing variability in customer experience and performance. It must be noted that both sets of documents must be seen as evolving with growth of the business and with changes in the external environment – the Marketing Manual is likely to be more stable, while the Operations Manual necessary needs to be as dynamic as the internal and external environment.

Stage 3: Orbiter

Now the brand is ready to reach out to potential franchisees. How wide a brand reaches, across how many potential franchisees, with what sort of terms, all depend on the vision of the brand, its business plan and the practices prevalent in the market. However, in all cases, it is essential to adopt a “parent” framework that defines the essential and desirable characteristics that a franchisee should possess, the relationship structure that needs to be consistent across markets (if that is the case), and any commercial terms about which the franchiser wishes to be rigid. This would allow clearer direction and focussed efforts on the part of the franchiser, and filter out proposals that do not fit the franchiser’s requirements. Franchisees can be connected through a variety of means: some will find you through other franchisees, or through your website or other marketing materials; others you might reach out to yourselves through marketing outreach programmes, trade shows, or through business partners. During all of this it is useful, perhaps essential, to create a single point of responsibility at a senior level in the organisation to be able to maintain both consistency and flexibility during the franchise recruitment and negotiation process, through to the stage where a franchisee is signed-on.

Stage 4: Landing

Congratulations – the destination is in sight. The search might have been hard, the negotiations harder still, but you now – officially – have a partner who has agreed to put in their money and their efforts behind launching YOUR brand in THEIR market, and to even pay you for the period that they would be running the business under your name. That’s a big commitment on the franchisee’s part. The commitment with which the franchiser handles this stage is important, because this is where the foundation will be laid for the success – or failure – of the franchisee’s business. Other than a general orientation that you need to start you franchisee off with, the Marketing Manual and the Operational Manual are essential tools during the training process for the franchisee’s team. Depending on the complexity of the business and the infrastructure available with the franchiser, the franchisee’s team may be first trained at the franchiser’s location, followed by pre-launch training at the franchisee’s own location, and that may be augmented by active operational support for a certain period provided by the franchiser’s staff at the franchisee’s site. The duration and the amount of support are best determined by the nature of the business and the relative maturity of both parties in the relationship. For instance, someone picking up a food service franchise without any prior experience in the industry is certainly likely to need more training and support than a franchisee who is already successfully running other food service locations.

Will going through these steps guarantee that the franchise location or the franchise network succeeds? Perhaps not. But at the very least the framework will provide much more direction and clarity to your business, and will improve the chances of its success. And it’s a whole lot better than flapping around unpredictably during the heat of negotiations with high-energy franchisees in high-potential markets.