(Published in the March 2012 of Images Retail, this is a compilation of Devangshu Dutta’s responses to questions put to him by the magazine’s editor on the subject of funding in the retail sector in India.)

India is one of the largest markets that promises a sustained consumer-led growth in the foreseeable future, due to the shift from a fragmented retail ecosystem to a more modern and consolidated industry.

Modernisation and consolidation will happen not only in front-end (retail) operations, but also in the supply chain of both products as well as tertiary suppliers such as equipment and service providers. Well-informed investors are looking at the entire ecosystem rather than only funding the front-end of the retail business.

The biggest challenge for private equity and venture funds looking to invest in the Indian retail sector is finding business models that are logically scalable within a four-to-five years time frame and allow the investor a decent exit. Due to the nature of the most funds and how they are structured, a seven-to-eight year term is the maximum time a fund would be involved with an investee company and it is difficult to find an investor with a longer-term horizon.

On the other side, this can also prove to be a challenge for the investee company: some of them may feel unduly pressured to grow faster than the natural pace of their business and could make strategic and operational decisions that are destructive to the business. As consumer incomes move up and the environment becomes more conducive, the life cycle to building a retail business becomes shorter. For instance, 20 years ago it would have taken over 10 years for a business to cross Rs. 100 crore (INR 1 billion). Today, with the right mix, it would take much less time. However, building a business that is both large and profitable (hence sustainable) still takes a significant amount of time.

Venture equity is suitable for businesses that can grow and add value inorganically, either in intellectual property-driven businesses such as technology companies and brands that can provide higher margin returns on a given equity base, or by selling the business further to investors who think they can derive even more value from it in future.

Retailing, on the other hand, is inherently an organic growth business, and the most suitable sources of funding for organically grown business are internal accruals and debt. However, the rapid economic growth in the last 15 years has created an opportunity for large businesses to emerge inorganically. Good examples of this are the large corporate groups that have entered retailing. Looking at them, one could be seduced into thinking that the environment and the business have changed significantly such that other professionally created businesses could be easily launched, venture-funded, and grown to exit. My take on this: If you can create a fund whose life is 20 years or more rather than the typical 10 years, there is a better likelihood of making it work.

Of course, bank debt is not easy for an entrepreneur either – Indian banks have become more progressive, but the norms are still relatively stringent. Unless the space is bought, the retail business has few significant-value fixed assets, and bank loans are limited for businesses that cannot offer much collateral.

Each stage of the retailer’s growth needs a judicious mix between own capital, supplier credit, bank loans and external investors’ equity. The last one evolves from friends and family at the inception, to angel and venture investment during growth to, eventually, public equity, if all goes well. Each of these sources of funding come with their own expectations on returns and disclosure, so an entrepreneur needs to balance these based on his own comfort levels. One of the most important characteristics for most institutional investors is that the business seeking funding should have a broad and deep management and executive team, rather than being over-dependent on the founder-entrepreneurs. There needs to be a demonstrated track record of growth that has been delivered by this team, and a clear future direction to sustain and grow the business.

It is a curious cycle: structured, process-oriented and systematic businesses that are not dependent on one person (the founder) are more likely to attract outside money, and outside money coming in puts more pressure to create transparency and broadening responsibility with which many entrepreneurs are uncomfortable. Most of them start their own businesses so that they do not have to report to someone else, but the moment there is external money involved, you realise that you are answerable to someone else. This is often a tough call for an entrepreneur – not just in India, but worldwide – a traditional, patriarchal and feudal mind set will just not work with external investors involved, especially in today’s environment where information and opinions flow more freely than ever before.

One of the most common mistakes Indian retailers make while trying to get funding is over-estimating the market demand. The second is underestimating the complexity (and costs) involved in starting and growing the business to profitability. Once you have put a business plan out there, it not only becomes a hook for your prestige, but valuation norms are also driven by the figures that have been agreed upon. This can cause business decisions that look productive in the short term – such as adding stores to grow sales immediately – but are harmful in the long run, such as adding stores in locations that are not sustainable. We have seen such decisions being made in the last five to six years, and investors as well as bankers are more wary today while evaluating businesses to fund.

A key thing to remember is: no matter how badly you want the money, it is not just about the money. From an entrepreneur’s perspective, who provides the money can be even more important than how much and how quickly the money comes in. For example, a particular investor could bring in a business perspective and relationships that are directly relevant to the entrepreneur’s business, which can add value well beyond the money that flows in. Commonality of objectives and a shared view of the time frames involved are also important, so that business decisions have the full support of the investor.

Timing is important: If you get an investor in too early, you may be losing on the valuation and selling out too much of the business to one investor. However, holding out for the ‘ideal’ benchmark valuation is possibly worse, because there is also a cost to the time and opportunity lost in getting the required funds. If I were to focus on one piece of advice to an entrepreneur looking to raise funding from a VC, it would be this: don’t try to extract what you think is your complete lifetime’s worth from the first investor deal that you sign. If the business is successful, and the first investors are happy with their returns, they and others are likely to come back to you in far greater numbers, offering much higher valuations.

Later-stage retailers still have avenues to raise debt and private and public equity, whereas start-ups and early stage businesses that can add significant entrepreneurial colour into the business are the ones that are struggling to get funded.

In many countries early stage seed, angel and venture investments are provided incentives in terms of tax structures – this is something that the venture community in India has been lobbying for with the government, and if provided, could improve the ‘investibility’ of early stage retail businesses.

[Readers may also find it useful to go through the brief presentation on Slideshare: “What does it take to create a fundable venture?”

The operating environment for the fashion retailers in India is only moving towards a more challenging and competitive direction even though the market is yet to mature. The market has grown over the last two decades on account of brand proliferation and developing retail network and more recently due to new product category creations. High consumer awareness and exposure to international trends has cut the product life cycles short. Topping this up, the last 12-18 months has witnessed the growth of the online platform offering an alternate, convenient and cost effective shopping option for consumers.

It is necessary that fashion retailers manage their operations efficiently both in terms of managing a complex and responsive supply chain at the back end and delighting the customers at the store with great product offers and customer service. Adopting lean practices can help fashion retailers to achieve significant improvements in store profitability and customer satisfaction, making their retail business sustainable through a positive impact on bottom-line.

The concept of lean philosophy, pioneered by Toyota, is built on the premise that inventory hides problems. The basic tenet of this philosophy is that keeping the inventory low will highlight the problems that can be dealt with and fixed immediately instead of maintaining inventory in anticipation of any bottlenecks.

“Lean retailing” is an emerging concept and has  already been adopted by retail organisations in the Western countries using technology such as barcodes, RFID (across the product value chain from raw material sourcing through production through final delivery at the retail store) and item-level inventory management and network architectures.

In an ideal scenario a retail organization would be lean at both the store and the distribution center. The organization would leverage technology such as RFID to uniquely identify the movement of its inventory accurately and use fulfillment logic as per the store’s merchandizing principle to have replenishments in tune with customer demand.

Some international retailers that have adopted lean retailing techniques include Wal-Mart, Macy’s, Bloomingdale’s, The Gap and J. C. Penny. Applying lean philosophy to fashion retail in India may sound like an avante garde concept as of now. However, there are some leading large retailers in India such as the Future Group who are early adopters and have already adopted lean practices in their retail supply chain.

An understanding of what lean retailing is and some of its principles can help in appreciating how this concept can make the apparel retail business more sustainable. Lean retailing aims to continuously eliminate “waste” from the retail value chain, waste being defined as any activity/process that is not of “value” to the customer. A fundamental principle of lean retail is to identify customers and define the “value” as those elements of products or service that the customer believes he should be paying for, not necessarily those that add value to the product.  Further the value should be delivered to the customer “first-time right every time” so that waste is minimized.

Lean retailing requires simplifying the workflow design in delivering products to customer. Given that the connotation of value is customer-centric, simplifying the workflow design requires streamlining the core and associated processes so that any kind of waste is eliminated. Further pull-system drives replenishment at the stores (and the shelf) based on what customers want “just-in-time” (neither before nor after the time customer demands). This results in a value flow as pulled by the customer.

Those practising lean retail have invested in information technology that allows the stores to share sales data in real time with their suppliers. New orders for a given product maybe automatically placed with the supplier as soon as an item is scanned at the check-out counter (subject to minimum order size criteria). Smaller stores may use visual systems wherein the sales staff can gauge through the empty shelf space the products that have been sold and that need to be re-ordered.

Removing bottlenecks throughout the supply chain is another principle driving lean retail. It entails redesigning processes to eliminate activities that prevent the free flow of products to the customer. Further, lean retail requires following a culture of continuous improvement. Continuous improvement (or “Kaizen”) focuses on small improvements across the value chain that rolls up into significant improvements at an overall level.  Kaizens not only can lead to elimination of wasted effort, time, materials, and motion but also focus on bringing in innovations that lead to things being done faster, better, cheaper and easier.  Involvement of staff at the lowest levels is very important in Kaizen activities and that means that companies must invest in training, up-skilling their talent pool in Lean Principles.

In the context of apparel retail business, lean retail can help in improving organisational responsiveness to customer needs, the speed with which the products are delivered to them and meet their expectations as per the latest trends. Systematic application of lean principles translates in increased throughput (Sales), with lower Work in Process (Investments) and as per customer requirements of Quality, Design, Trends and Time. Improved information visibility across the chain leads to reduced instances of out of stock and excess inventory at the same time, minimising inventory control costs and reducing shrinkage. At the front-end lean retail may lead to redesigned in-store processes and systems for consistency in frontline behaviors to provide standard customer experience.

With the focus on training and involvement of the workforce, Lean principles have resulted in improving employee satisfaction without increasing labour costs that in turn positively impacts revenues and profitability. Some retailers in the West have reported reducing their store labour costs by 10-20 percent, inventory costs by 10-30 percent, and costs associated with stock outs by 20-75 percent on account of lean retail.

In addition to top-line and bottom-line impact, lean retailing by enhancing the enthusiasm and motivation of the frontline staff creates distinctive shopping experiences for customers.

Inditex, the world’s largest clothing retailer with Zara as its flagship brand, has successfully achieved supply chain excellence following lean principles.  It targets fashion conscious young women and is able to spot trends as they emerge and deliver new products to stores quickly thereby establishing its position as the leading fast fashion retailer. The product development processes is based on customer pull-system. Its design team reviews the sales and inventory reports on a daily basis to identify what is selling and what is not.  Additionally, regular visits to the field provide insights into the customers’ perceptions that can never be captured in the sales and inventory reports. Critical information about customer feedback is widely shared by store managers, buyers, merchandisers, designers and the production team in an open plan office at the company’s headquarters. Frequent, real time discussions and interactions within the team help them to understand the market situation and identify trends and opportunities.

Further, Zara manufactures the products in small lots and many styles are typically not repeated. Style cues for replenishments are derived from real time customer demand. At the back end, Zara holds inventory of raw materials and unfinished goods with its supply partners which may be local or offshore manufacturers. Typically, the fashion merchandise is produced at the local manufacturing base and quickly delivered while the staple low-variation range is produced offshore at cheaper costs.

Following lean retail practices implies a higher stock turn and frequent replenishments by the suppliers based on real-time sales. Building and maintaining reliable and responsive suppliers through win-win partnerships, is imperative to realize the success of lean retail implementation as high stock turns and frequent replenishments involves the commitment and involvement of the entire supplier base.

Like in any transformational effort, change management plays a critical role in reaping the benefits of lean retail. The whole philosophy requires paradigm shift in attitudes, behaviors and mind sets of those involved upstream and downstream across the value chain. Training, communicating and inspiring the front end staff is thus an important aspect in the overall success and companies need to device a compelling vision that is shared by employees across functions and hierarchy across the entire chain.

During its history, the Indian subcontinent has been known as the “Golden Bird” for its natural and manufactured riches. In fact, long before the United States of America, India was the Land of Promise. (The irony, of course, is that Columbus also set foot on North America when he was actually trying to discover an alternative route to India.)

However, in the more recent centuries, India became an exploited golden goose which not only stopped laying golden eggs, but also almost appeared starved at different points in time.

The government’s thrust on infrastructure and industrialisation in the 1950s would have been a great base for economic growth, but the country had to wait another 4 decades to see a true boom, which only happened after the government began stepping back from excessive controls. Similarly, while the Green Revolution took India to self-sufficiency in grain and White Revolution made India the largest producer of milk, we are very far from the place where we can celebrate a boom in agriculture.

If anything, the recent economic boom is much more an urban and upper-income phenomenon, and that is creating some serious socio-economic fault-lines, about which I have expressed concern earlier. The growth of income inequality looks slower in the case of India than in the case of China, but that is only because India still has far too many poor people weighing down the decile averages.

My concern today is of a different nature: about the need to secure food and nutrition supplies for the burgeoning economy.

Over the decades, farm-holdings have steadily fragmented. With shrinking parcels, a farming family finds it increasingly difficult to create enough surplus produce to trade effectively. As farming becomes unattractive, the family looks at alternative, primarily urban opportunities to generate income, reducing the hands available to farm.

At the same time, economic shifts are causing increasing urbanisation, as concrete and glass takes over what used to be active farming land. Large cities such as Delhi (Gurgaon) and Bengaluru are prime examples, but the phenomenon is affecting smaller cities as well.

The demographic dividend to which we should otherwise look forward could, therefore, turn out to be a triple time-bomb, with:

• reduced land availability for farming
• a shrinking labour force for farming
• a booming young population driven to building, manufacturing and service jobs, that needs to be employed and fed as its income goes up

The employment issue needs to be addressed by placing adequate emphasis on manufacturing (especially labour intensive products) and entrepreneurship, but without addressing agriculture, even this growth would unsustainable.

Also, India is at the inflexion point similar to where China was in the 1990s. The increasing income is leading to changes in food consumption. Not only is the overall consumption growing, the diet is broader and more balanced, as people are able to afford a greater variety of food. There is a growing consumption of milk, meat and poultry products, as well as processed foods (per capita of processed foods quadrupled from the late 1980s to the early-2000s). All of these require more inputs (land, feed, water, and fertiliser) per unit of food produced.

We may be tired of hearing this, but Indian farm productivity continues to be among the lowest in the world. For instance, India as the largest milk producing country is still only at about half the level of milk production per head of cattle, when compared to the global best. Similar comparisons can be made across the food supply chain.

There are three legs to create a change: technology, dissemination of information, and market demand.

There is an urgent for technology infusion across the chain, from seed to shelf. Technology doesn’t only mean tinkering with the genetic code (about which there are significant sensitivities). Traditional technologies that are centuries-old can be as effective, sometimes even more so, as technologies that come out of modern labs. If we can avoid taking a “fundamentalist” approach between modern and traditional, we will probably achieve much more, and faster in cultivating and harvesting more efficiently.

Information dissemination is vastly superior today, and with the convergence of internet and mobile technologies, not only is it possible to compile ever more information, but also spread it in regional languages very cost-effectively.

But these two alone will not be quick enough. The last, but possibly the most important leg, is market demand.

For obvious reasons, manufacturers and retailers are focussed on growing their brands, sales and driving per capita consumption. I would argue they also need to look equally critically and perhaps more urgently at the supply chain.

Without seeing the farmer and the processors as true partners in the supply chain, and ensuring them a productive existence, any victory on the market or brand-side will only be hollow.

As customers, retailers and brand manufacturers not only have the weight, but the sophistication to encourage development. Retailers and brands have the power to drive change. They must also assume the responsibility. A few of them have begun showing the way, but need support from many more. Urgently.

Business Standard, Mumbai, February 28, 2011

Sayantani Kar (with inputs from Preeti Khicha)

When some of India’s big retail chains banded together recently to substitute Reckitt Benckiser’s products with private labels to protest the latter’s decision to cut sales margins on its products, they were doing something many global retailers have done with great success. Part of their overall strategy, especially for large chains in the US and Europe, is to develop quality private label products that complement other pieces in their marketing mix. While this is one way retailers can differentiate their firms from competition, it also helps them flex their muscles in their relationships with brand manufacturers. Indeed, retail giants Tesco, Walmart and Carrefour have a significant portion of their sales coming from private labels — ranging from 10 per cent for Costco and 50 per cent for Tesco.

India is a back runner in the private label race, but it is catching up. A Shoppers Trend Study by Nielsen found awareness about private labels has gone up from 64 per cent in 2009 to 78 per cent in 2010 across 11 cities in India. Nielsen Director (retail services) Siddharthan Sundaram says, “Over the last three to four months, we found an increased awareness of private labels in categories such as staples, household products, personal care products such as soaps, biscuits and packaged groceries.” Thanks partly to the recent economic downturn, there is greater acceptance — and even loyalty — to such brands in India, say marketers. Future Group Business Head (private brands) Devendra Chawla reasons, “A label on the shelf becomes a brand by covering the two feet distance from the shelf to the trolley. After all it is the consumer’s choice.” Even in the toughest segment for private labels to crack — fast moving consumer goods including food and personal care — store labels claim share of 19-25 per cent.

Low-involvement categories such as household cleaners were among the first to see the entry of private labels (17-44 per cent of sale in modern trade), bringing in huge margin-lifts for modern retailers. In categories such as food products — jams, biscuits and staples — private labels today contribute more than 25 per cent of modern trade sales. Little wonder, retailers are now mining shopper data to make private labels shed their ‘low’ly tag — low involvement and low cost. Store chains are segmenting their brands according to consumer needs, combining more than one brand according to consumer behaviour, besides launching high-involvement premium products and innovative packaging to give national brands a run for their money.

Innovate or die
Retail innovation has had a big role to play in speeding up the process of consumer acceptance. Future Group’s retail arm, which includes Big Bazaar and Food Bazaar, calls its in-house products ‘private brands’ not labels. It has a separate team, headed by Devendra Chawla, to research and test FMCG products before launch. The team has a range of private brands — Tasty Treat, Fresh and Pure, Cleanmate, Caremate, Sach, John Miller, Premium Harvest and Ektaa. Look at how it is using shopper data to improve its products. The insight that kids found ketchup bottles cumbersome and had to be served — making it inconvenient if an adult was not around — led it to change the packaging that in turn gave the brand a margin advantage. By offering ketchup in pouches, it saved on the price of the glass bottle and freight (pouches take up less space in a truck, hence more can be fitted in). While ketchup in glass bottles continue to be Rs 99 for a kilo, its Tasty Treat ketchup pouches come in Rs 59 packs.

By working with vendors it has also come up with interesting combinations — for example, its Tasty Treat jam has three small tubs packed as one unit, each tub containing a different flavour to offer consumers larger variety.

Retailers have now donned the hats of “product selectors” and “product developers” at the same time, points out Third Eyesight CEO Devangshu Dutta. “So far, most of the retailers were just selecting products from vendors which are mostly lower-priced knock-offs of manufacturer brands,” he says. Not any more.

Ashutosh Chakradeo, head (buying, merchandising and supply chain), HyperCity Retail, explains the process his company follows: “To develop food products, we identify vendors, tie up with food laboratories, chefs and consumers to be part of the tasting panels. Before launching a private label we do at least a month of consumer testing. We identify customers from our loyalty programme called Discovery Club, which tells us who buys a certain category of product. We give the relevant consumers our private label products for trial for a month. We meet the customers at their homes, take their feedback and these changes are incorporated into the private label brand.”

“Our stores act as research labs and are a constant source of feedback,” points out Chawla of Future Group. Chawla estimates 3-4 per cent of the sales of private labels are ploughed back into packaging and design innovation. Reliance Retail CEO Bijou Kurien says, “The teams are our main investment in private labels. Our 100-strong designers across all the formats help in coming up with product designs that fill a need gap or offer a few more features at the same price as national brands.” Reliance Retail has recently launched its own brand of watches priced Rs 149-199 which “no national player can offer” points out Kurien.

The edge
Most vendors directly supply to retailers’ distribution centres, cutting out cost leakage at the distributor’s and carrying and forwarding centres. Direct access to store shelves and aisles also cuts out the high mainstream advertising costs that brands have to bear. By clever product arrangements and in-store promotions, retailers can sway the shopper and draw attention to the price advantage. Chakradeo says, “We display private labels in heavy footfall areas in the store. We complement displays — so we keep our private label ketchup near the bakery.”

To tackle the tricky personal care category of face creams and shampoos that Aditya Birla Retail’s More chain has entered, it plans to communicate promotional offers straight to its loyalty programme members. “It will help us induce trials,” says Thomas Varghese, More’s CEO.

Bundling products is another way to woo the value-conscious consumer. Six months back, Future Group started bundling its private brands. Chawla says, “Take home-cleaning, which requires a floor cleaner, glass cleaner, toilet cleaner and utensil cleaner which we combined as a shudhikaran solution of our Cleanmate brand.” The combi-pack costs Rs 125, which would come to around Rs 220-250 if shoppers bought a la carte. The margins are still high at 26 per cent. “Vendors are assured of volumes,” points out Chawla.

What it also does is convert the fence-sitter who has not yet bought into a category. For example, consumers who avail of the shudhikaran solution also get into the habit of using glass cleaners — a category which has a small base and gets most of its sales from modern trade. Similarly, Future Group saw a 25 per cent spurt in the sales of soups when it clubbed soup mugs with its Tasty Treat soup packets based on the insight that Indians preference to sip their soup out of a coffee mug.

Don’t be surprised if you see MNC brands coming out with combo-offers for their products, way bigger than the occasional bucket with a detergent!

Growing up
There are signs the industry is evolving. Private labels in FMCG are shedding their low-cost tags. But retailers know better than to vacate low price-points altogether. Instead, they are segmenting their brands just as a manufacturer brand would do. Chakradeo of Hypercity says, “Over a period, we hope to increase the stickiness and the differentiation our brands bring to our stores. Particularly, in staples where we have seen our private label business grow rapidly. This is a very quality and price-sensitive category. We started with basic products but now we have premium daals (lentils) and basmati rice as part of our portfolio.”

Future Group too has its ‘good, better, best’ policy firmly in place. In staples, the stores offer some products ‘loose’, such as rice, wheat, lentils, which is at the bottom of the ladder. Its Food Bazaar version of the products straddle the middle category, and above the two is its brand, Premium Harvest, which retails at a price higher than some manufacturer brands.

Stickiness may also result from the manner in which retailers are positioning their brands. Future Group’s brand Ektaa will retail regional food and staples across its stores in the country so that migrants can buy supplies they are comfortable with. Be it Govindbhog rice and kasundi (a rice variety and mustard sauce preferred by Bengalis), khakra (Gujarati snack) or murukku (loved by Tamilians). Boston Consulting Group Partner & Director Abheek Singhi says, “Indian retailers are not cut-pasting private label products from other markets but adapting them.”

Are private labels a risk worth taking? Chakradeo says, “The entire product formulation for our cleaners was done in partnership with Dow Chemicals, USA. We did not make any investment and we gave them a percentage of sales as fee. Investments are not huge in making private labels as in most cases it is partnered with vendors. It is more of operating expenses than capital expenditure.”

Future Group brought down logistics costs further by 6-8 per cent by appointing vendors in more than one region for 10 of its product categories to fill its distribution centres. Chakradeo adds, “As the volumes go up, we will be able to put up for backend infrastructure facilities for development and R&D.”

Should national brands be worried? Devangshu Dutta says, “As long as retailers have access to the production and development and have customers for it, the private labels will remain profitable.” India Equity Partners Operating Partner V Sitaram sums up, “In modern trade, though the market leaders will face some slip in market share, the number 3 or 4 brands might have a bigger problem in certain categories thanks to private labels.”

As retailers leverage consumer insights to deploy private labels more effectively, national brands are aggressively fighting the challenge. From sprucing up supply chains to galvanising in-store promotions, they are covering all bases. KPMG Executive Director Ramesh Srinivas says, “Earlier brands had to adjust between a modern trade and a general trade supply chain. The former had to be serviced directly at the stores or had their own supply chain while the latter used the manufacturer’s supply chain. Now, some brands separate modern trade teams and even distributors.”

Britannia Category Director (delight and lifestyle) Shalini Degan says, “We have divided our portfolio into three categories, A,B,C, each having its benchmark fill-rate. We don’t allow fill-rates to drop below those levels. Why the segmentation? We need to focus on brands which have a higher traction in modern trade when servicing it, else we might end up focusing on brands that are not modern trade-led.”

Fill-rates denote how often and to what accuracy the retailer’s orders for a product are supplied by the manufacturer. Low fill-rates could mean lost opportunity since the shopper sees an empty shelf or a private label instead of the brand she might have thought of picking up.

Samsung Vice-President and Business Head (home appliances) Mahesh Krishnan says, “We have gone in for central billing system 4-5 months back with all large-format retailers. Orders are tracked on a daily basis giving retailers more control over the chain.”

In other words, private labels are here to stay and will evolve as more and more chains gain national footprint and the economies of scale kick in. Dutta of Third Eyesight says, “Gross margins for organised retailers are still low compared to global standards: So, margin fights will continue for some time till retailers gain a bigger share of the pie.”

(Also read: The Private Label Maturity Model.)

Retailwire raised a pertinent question recently about social media and marketing. In marketing as in life, it is all about timing. The question was whether retailers and brands should be concerned that they are moving to Facebook at a time when large numbers of teenagers are abandoning it? 

Having said that, I’d like also to take a different look at those stats. Demographics and physically addressable market aside, the question is what proportion of your potential customers are receptive to the brand in that environment.

At the moment, Facebook is not a medium amenable to classic interruption marketing. (Although it may become that in the future, just like Youtube, with Google ads popping up across the bottom of the video.)

Neither is the Facebook user’s primary purpose brand loyalty or looking at marketing messages. The average Facebook user has enough to keep him/her busy or distracted, without getting on to a brand’s page. That video of a mother with laughing quadruplets is far more likely to get viewed and shared than any of your marketing messages.

If your brand isn’t interesting, engaging, and open, you can’t have the conversations that a platform like Facebook facilitates. If there’s no on-going conversation, your chief Facebook officer is wasting the company’s time, money and internet bandwidth. Logout. Now.

The entire discussion on Retailwire is here: “Marketers Move to Facebook As Teens Move Away” (needs a free sign-up).