Are eTailers really challenging the Retailers?


ecommerce-840x420

 

Let us assume that there are just 3-5% people who are actually shopping online, rest either don’t have means or knowhow of online shopping or their location does not permit them to buy things online. So will still believe that Online shopping is changing anything in India, and specifically for the retailers sitting in their shops?

In the present market like India, two ways of buying is getting very popular – ROPO – Research offline, Purchase Online; OR Research Online, Purchase Offline.
And depending on what you want to buy, you choose your research method and then filter the purchase channel. Lets take a few examples….
1. You want to buy a mobile phone. Now a mobile is not something which you buy in a jiffy, at least not for 99.99% Indians. It needs a thought. You needs a price discovery mechanism. And even before going for prices, you want to understand which features do I really need. What is my peer group using. etc. Now, the easiest way to get this much information is to simply read online. And visit a few online stores and get a sense of what is being sold. So, you research online. And then, depending on the kind of phones you shortlist, you would sure want to get a feel of it. So you walk down to a store in your locality and have the product in your hand. You also get to know the store price of the products and then judge whether the online is cheaper or the store? You finally purchase it wherever its cheaper.
Lesson here – Price discovery is getting easier for a consumer. And this does matter a lot to the retail stores. Their margins have eroded like never before. And even if looks like 3-5% people who buy online, but these 3-5% have totally changed the way how retail stores work – They just can’t afford to charge more than an online store.
[As a matter of fact, electronics market is the worst affected by the online retailing.]
2. You want to buy groceries. For most affluent people (not more than 3-5% people in India), this is a daily hassle which they want to get rid of. I mean who wants to reach out to a vegetable seller and negotiate the prices. The mechanism for price discovery in this market is totally biased towards the cartel of vegetable sellers. So, chances are very high that you won’t be able to buy at your terms. What is the escape – Go to an online grocery store, and order the stuff. You also get the deliveries done at your home.
Lessons here – You just removed yourself from negotiating with the cartel. And hence reducing their pricing power. Instead you chose someone who is giving you an additional service.  And it does affect the sellers – they are losing customers rapidly, because the word spreads like fire in the jungle.
[Online shopping is slowly and silently eating-away the share of retailers, however the market is so big that it will take a few years to show some real impacts. But the impact will be seen for sure.]
Plus there are many more things which are changing day after day, like earlier if you wanted products or services which were not available with your retailer, you were forced to choose an alternative (which was solely the choice of your retailer), now thats just not possible – If you want something, you get it. Irrespective of whether you retailer has it or not. Earlier your retailer had the incentive to not sell the product of your choice, but the competitor’s products (because the margins were richer), but now he has no option but to keep it (even if the margins for him are lower) and hence impact the bottom-line.
Take for example…Every Indian household needs condiments to cook their food. Now this masala business is an interesting business – it’s highly correlated to the advertisements you see on the TV. The higher the Ad spend by the company, more is the demand, and lesser are the margins for the retailer.
So who do you think gives the least margin to the retailers? MDH. And which is the most demanded masala? Again, MDH. But go to any retail kirana store and ask for MDH masala, 60-70% stores just don’t keep it. They simply refuse to keep it, after all the margins offered by MDH are the least in the whole industry. And they keep most of the alternatives. But what if you want to have only MDH masala and nothing else? You force your retailer to keep it by not buying an alternative and ordering it online, and hence take away his recommendation power and fat margins.
That is how these 3-5% online buyers are forcing the retailers to change.

Next time when you visit a shop, irrespective of what it sells, ask yourself the same question – What might be changing in his life because of online shopping? Is is ready to compete with the online brigade? If not, what is going to change in his business? Or else what should he do to stay relevant to his customers. It would sure be an interesting exercise!

[I wrote this answer originally for a question asked to me on Quora, and you can read my original answer here.]

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Rotimatic – The Roti Maker, shouldn’t they startup in India?


Recently someone asked me to answer a question on Quora, which goes like this – Given the food habits of Indians, why does a company like Rotimatic which has developed an automatic Roti maker didn’t start the company in India. (This article is an original content of Sarsij Nayanam who writes at sarsij.in)

I believe this question is pretty interesting and every B-School should consider teaching it in their Strategy Lectures. There is so much of strategic insights to gain from this company. Find my answer below….

Rotimatic

 

I think its an excellent question, and to my understanding this company (Rotimatic) should be included as a case study for demonstrating a unique strategy.

So, let me begin with some of the questions you should be asking when you think of Rotimatic…
1. Who is the customer for Rotimatic main product?
2. What behavioral change is Rotimatic trying to bring in their customers?
3. Is there any competitor for Rotimatic in the existing market?
4.  How much should be the price of this product?

Now lets try and look deep into the matter….

A roti maker, in 99% cases is useful only for someone who is an Indian and has been eating roti as a part of his meal. I doubt if other nationalities have much use of a Roti maker, because if they feel like having Indian food they will just walk into an Indian restaurant. (This article is an original content of Sarsij Nayanam who writes at sarsij.in)

Now, what is the behavioral change this Roti maker trying to bring? In most simple words – its trying to save a lot of hassle for those who need to make rotis every day. Its saving a lot of time for them. And its automating the whole cumbersome process of making round rotis. So, who do you think is the actual customer for this product? Ladies & Households who do not have much time for all this, but still do some cooking. Also, those  young couples who just started their family, and will eventually cut down on eating out and somehow start learning the art of cooking. (This article is an original content of Sarsij Nayanam who writes at sarsij.in)

So are there any existing products which could compete with Rotimatic’s Roti Maker? Yes, almost every restaurant which offers a tiffin service already has a Roti maker sitting in their kitchens. And by the roti maker is not a new concept, even in 1990s this product did exist. However, their quality and usefulness sucks big time. And this is one reason why it could never become a household name ever. Even those people who bought it, had to discard it after a few days because its just not effective. It claims to solve your problems, but after using it a couple of times, you consider this machine to be your biggest problem. Also, the price points at which this product was available, it was always meant to be bought by the mass market. (This article is an original content of Sarsij Nayanam who writes at sarsij.in)

Hence, what was needed was a paradigm shift in the technology and then reaching out to the suitable customers. And this is what Rotimatic is trying to achieve – Make an awesome product which ‘really’ solves the Roti making issue. And target an audience which will buy it and use it daily. (This article is an original content of Sarsij Nayanam who writes at sarsij.in)

So, Rotimatic is targeting a segment in which customers believe in Quality of the products, and hence would pay a price for it. This roti maker is not for everyone. It has been made for the upper strata of the society.

And what has been the buying behavior of this class ? This class of the customers have a clear bias for products which are not Indian or Chinese. These customers have already seen the quality of products which have a foreign tag attached to it. Hence, this product becomes more valuable to these customers because it will ‘appear’ to them as a foreign manufactured product. (And the same applies to the customers of Indian origin settled in other countries). (This article is an original content of Sarsij Nayanam who writes at sarsij.in)

So, is Rotimatic is doing the right thing by creating the product for Indian while sitting in some other country? Certainly, this makes them eligible for a premium pricing and have a better opportunities to market the product well.

To draw a parallel to these Roti Makers, I would like to give you the example of the strategy used by Apple while they were launching their iPod – Similar products existed, however they had their own limitations. Those similar products were created for the mass market. Apple came and created a new segment for itself and then excelled the market competition. I personally believe Rotimatic is also using the same strategy. (This strategy is widely known as Blue Ocean Strategy). (This article is an original content of Sarsij Nayanam who writes at sarsij.in)

Apart from these strategic choices of opting to start in some other developed country, there are ofcourse some operational challenges which India poses – Like stringent labour laws, lack of skilled workers and technicians, poor non-existent intellectual property laws, strict capital flow regulations, and even more stricter tax regulations. There are many factors why a startup might want to stay away from Indian shores w.r.t. its daily operations .  (This article is an original content of Sarsij Nayanam who writes at sarsij.in)

Final thing – Rotimatic’s success is certain, provided they have reliable supply-chain & Retailing strategy in place (or in process).

[My original answer to this question on Quora can be read here. The entire question and answer page can be accessed here, you may visit and read some of the other answers too.]

I usually spend a lot of time answering questions on Quora, if you want to access them, please go to my  profile page.