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Last updated: 03 Mar, 2015  

handicraftTHUMB.jpg What is made shall be sold!

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Dr. Yasho V. Verma | 03 Mar, 2015
It is the beginning of a new year and the inevitable madness for marketers starts all over again with chalking out budgets, marketing plans, advertising calendars, promotional activities and discount months.

Consumer is only super-delighted. It is raining discounts and offers that are extremely tempting and hard to resist. But what may seem unusual about the hype is the traditional channel of sales appearing threatened by a relatively new industry, the e-tailers. It is not a war between typical brick and mortar retailers and ecommerce startups in India or global, neither it is between handful e-tail companies that have suddenly grown big; it is now a game between smart algorithms on the internet. E-commerce as such has grabbed attention mainly due to the ease and convenience it provides while purchasing, plethora of options it throws in search results and attractive prices it has to offer. But in India, e-tailing is trending more as a contest in bestowing maximum discounts in a highly price sensitive country. This certainly is a disruption in the way market forces function, and like any disturbance does, it is bound to stir some beliefs. The retail behavior in India had intermittently shown signs of 'queen bee syndrome' and it is therefore not new that trade organizations representing their collective market response had sent impatient correspondence to the Ministry of Commerce and Industry seeking intervention.

In a contemporary technology-led world today, manufacturers face a daunting task in designing effective incentives for their retailers. Channels of distribution have become diversified more than ever before. Customers are given a wider market exposure merely via a click of a button on their handset screens; they can compare through virtual catalogues and book a product of their choice within a second. The online format has added Tier II and Tier III aspirational consumers vying for brands primarily available in metro cities. As per industry estimates, growth in Indian online retail market is set to be the fastest in Asia-Pacific with total market slated to reach over $8 billion by 2016.

I observe, in the past few weeks too much happened too briskly in the consumer durable retailing, the fastest growing industry in India. Currently it stands at about $10 billion and is expected to turn around $40 billion over the next few years. As per Google, maximum online buying is of consumer durables at around 34 percent of online market share. I still presume it should be travel related transactions that should still hold dominance in India - primarily for air or rail tickets and hotel bookings. Whatever the case, the new selling platform should be viewed as complimentary.

There can be a 'flip' side to the online 'carting' business. The online buying format is scrutinized as it is too vulnerable to market polarization and predatory pricing. It also does not allow answering basic product information like the stage a product is in, in its life cycle and how old is it from a dated inventory. Customer will more likely move towards 'as is where is' demands and e-tailers should be able to sufficiently counter that with some kinds of reassurances or certifications. 

It is not new that manufactures get worried when their resellers have variable selling prices; it confuses the buyers and is deteriorating to a brand. Lot of companies have set Minimum Operating Prices (MOP) or Minimum Advertised Prices (MAP) that over the period of time has become a stringent rule for their partners, though not a lawful practice and not bound by a contract. A mutual understanding and trust has kept such off-hand and off-record practices still working for manufacturers ensuring control of price volatility. There are penalties if these are violated by their resellers but there are also rewards if they adhere to that of access to market-development funds - which can be used towards advertising the manufacturer's products, an overall partnering resulting in prosperity for both.

On the Big Bang Day during Diwali last year, Flipkart had almost managed to create a parhelic effect though for a day. It seems like a good example of what is elaborated in 'Give and Take', a book authored by Adam Grant, a well known social science and organizational psychology writer. While Flipkart had given colossal discounts, they may have also received what is termed in internet language as Pay Per Clicks (PPCs). It may be considered a short term marketing tool but nothing seems to be wrong about it. Only caveat is, when in the game of valuation the tables are turned, they should be able to back their side with a combination of superlative market share, y-o-y growth and unswerving profitability.

I would not say the day concluded as a debacle; there were immense learning for all to follow. India has over 137 million internet users representing about 11% of its population and it ranks third in the world behind only China and USA. It is also among the three fastest growing markets for internet usage ‎worldwide, according to ASSOCHAM. While we know e-commerce will only grow, it needs to pace up resolving its infrastructural issues. Experience of touch and feel will not fade away too soon from the minds of Indian customers. A new or old marketing company cannot afford to fail at providing and enriching customers with the knowledge of the product, this will only help evade advertising strategies like these to boomerang.

Amazon and Alibaba represent how the e-commerce markets grew in US and China and in many ways India seems to be growing similarly. But it may still need more number of years to achieve certain efficiencies in payment and delivery mechanisms that these mature markets now have. While Amazon had already announced setting up its first offline store in New York, Alibaba too had bought a 25 percent stake in Intime Retail for about $700 million. Online buying into traditional retail should be able to comfort old formats that channels are not cornered to suffocate, they just need to be more organized and used in an innovative way. In India, traditional retail channel still covers 90-95% share and until an online player acquires a double digit market share in retail segment, offline retail will continue to rule the industry, till then manufacturers will continue to feel the pressure of retail resisting a new form of selling. This is like Deju vu of times when modern trade or hyper-malls were to hit the commercial landscape, the mom-n-pops were making a hue and cry, and even the manufacturers had initially dissented. The retail sales from modern trade had then stagnated with about 12-13% as contribution for a few years. Over a decade later today, we all have survived, more than that we continue to shop till we drop!

It only speaks volumes of the great potential the new industry of e-tailers the country holds. The manufacturers and resellers should not feel disillusioned, rather they should work together to use synergies to keep their customer enchanted for all times to come, whatever be the means to market products into hearts and pockets of buyers. I tend to agree to what Samsung had to say on this big bang that in the long run, consumers will ultimately decide on which channel they would want to use to buy products from. Frankly, it should not deter our young brigade of innovative marketers if they just somehow learn the art of taming the two wayward rabbits (valuation and profitability) running in two different directions. The war if it is, let them brave it with sincerity and the promise of building genuine customer satisfaction rather than just offering superficial repertoire while trying to find a method in madness. 

*Dr. Yasho V. Verma  is a management philosopher and  currently  holds  significant  roles in various entities as a Chief Strategist,  an  Independent Director and a Business Consultant.
*Disclaimer: The content including all the data, information, illustrations, graphs, tables or other visual representations written or compiled in the manner as above is owned by Dr. Yasho V Verma. All or part/s of the document cannot be republished without prior permission and consent from the holder.

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