Easy Money and the Death of Darwinism

Business must have started with innovation and grown with imitation. The first traveling salesmen or money-lenders would have probably not worried too much about the uniqueness of their idea - there was enough space for everyone to survive and thrive. Then as markets must have begun to saturate, each new shopkeeper or money-lender must have found it difficult, and must have been forced to innovate again, or move to a new unsaturated market. This cycle must have repeated a thousand times in history. And as this happened, the scale of business must have changed, with brotherhoods of craftsmen, with trade-centers, then the Industrial Revolution and most recently with the Internet.

Today the theoretical scope of most businesses is global. Information Technology, the Internet, the English language (and translation tools) and the evolution of similar cosmopolitan markets have made the spread of business easy. The availability of funds is no longer the biggest constraint. The world is indeed your playground.

So that's great, isn't it?

Well yes, obviously; and no, not so obviously. You see, in the traditional setup, there was a fair bit of rich-get-richer, but there was Darwinism as well at play. It took generations of good work for, say, a restaurant to build a reputation. In the absence of a TripAdvisor or a Zomato, when people asked around for the best restaurant, those few restaurants with reputations would get disproportionate referrals. New restaurants would really have to work hard and innovate around customer-segments, service and of-course food to make it (as) big.

What happens now is different. Any hole-in-the-wall food outlet can get the same visibility as a third-generation restaurant. The good part is that a lot of these small guys get orders, which, a decade back, they wouldn't. The bad part is, and this part is controversial, not all of them deserve your orders. Try ordering.

Some of these guys are genuine, talented folks trying to make it in the new economy. But some others are fly-by-night imitators, who know they can order from themselves and make money, use cheap oil, run a happy-hour deal and get orders, and to cut a long story short, substitute marketing for reputation. Some will even get bigger and get funded, and then start offering you 'deals' that help you decide in their favor. Others will serve a few customers, get bad feedback, and relaunch with another name. They will buy banners and come up first in searches (no offence meant, but really how many feedbacks does a typical Foodpanda outlet have, and how hard is it to buy that?), and to cut a long story short, make money, while a lot of genuine outlets will find the going tough.

Today anyone can become an eCommerce seller, a delivery outfit, a home-improvement service, a beautician or a taxi-operator. At the level of businesses, someone's money can ensure you take a shortcut to scale and get ahead of other competitors. To be clear, what it means is that if your money comes in, you'll suddenly have pole position - but of-course it doesn't mean you'll win the race - which is fair. But if the investment-led discount-madness continues even for a while, the waters get muddy.

What is not fair is when the best team folds up because they have been undercut on price, swamped out of marketing race, had their key people poached, or any other reason that has nothing to do with how good one is at delivering the value the customer wants.

Here's wishing the madness eases soon. Here's wishing a return to meritocracy. May the best team win.    

Hyper Local or Local Hype? ...a look through the inventory lens

For some investors I knew, Hyper-Local was always pronounced Hype-Local since the 'r' for revenue was missing. How on earth, they say, will anyone make money just delivering stuff at no margin while overpaying delivery boys and doling out coupons? I'm sure we've all done our doomsday reading on Food-Tech, e-Grocery, Home-Improvement and Local Logistics, and probably Hyper Local too. The aim of this post isn't naming all the many startups in trouble but to figure out why.

Some people ask if the early death of such ventures is a bad thing at all. A lot of startups and investors I know are celebrating the separation of the chaff from the wheat. Many food-tech startups, for them, had no 'tech' in them. They were helping people do on an app what they used to do on a phone call, e.g. explore menu options or order food. Many on-demand local-logistics people were just overpaying drivers and under-charging merchants in the hope their inflated orders are seen as traction by their investors. Grocery, similarly, is a tough game with notoriously thin margins. It took Ocado 15 years to deliver the first year of profits. Service aggregation has its own problems that prevent every business from becoming the oft-touted Uber-of-XYZ.

So, getting back to the point, what's the deal about Hyper-Local?

Let me make a very basic point. Inventory can be classified in many ways but a useful classification is on the scarcity axis, which translates into premium chargeable. One can have the following kinds of inventory on this logic:

• not-found elsewhere including rare, private-labels and exclusive inventory

• hard-to-find or hard-to-get elsewhere

• better-priced / faster delivery than elsewhere

• commodity inventory

Most delivery startups (sorry, hyper-local is what I meant) are just playing the third or fourth bucket, with a very thin reason-to-believe that they'll transit to the first two. What that means is that customers will use a provider today as long as no premiums are charged, and the moment that changes, the customers will just delete the app and revert to their default behavior (of ordering on phone, informal credit, month-end-billing etc) as will retailers (more on an earlier article by me), and the investor will be left high-and-dry while entrepreneurs will leave with small packets of moneys paid to themselves and good credentials to get another business funded. 

The last two buckets are red oceans. Even if one has an edge today, the slope will stay slippery. even if one goes directly to sub-distributors or the local wholesale market as these startups do, the advantage is a very small percentage.

Secondly, the true brand customers buy is a 'Maggi' or 'Amul Butter' (destination) and not a Grofers or Peppertap (journey). Most hyperlocal businesses are building for destination loyalty (read: apps) in a world of price-sensitive pre-planned purchases. Once users feel they're not getting a price advantage, they'll get antsy - they'll first disable notifications, and then delete the app altogether. The fact that one gets a branded carrybag from a deliveryman wearing a branded Tshirt isn't going to make anyone loyal. The fact that these guys turn up late with orders mixed up and frequently without change is just a further irritant.

The nemesis of hyperlocal isn't a supermarket or large mall or even a visit to the local kirana shop - the nemesis of hyperlocal is phone-ordering from a nearby kirana guy who knows you by name, prioritizes your order, doesn't mix up orders since he's in the trade for the last thirty years. It's a business that underpays its unorganized labor and doesn't give them T-Shirts and keeps them on their toes, that underweighs and doesn't pay all taxes and uses every trick in the trade to steal your pennies and yet make you feel great. And, remember, these businesses are strongly cash positive - so much so that they may not even know what valuation means, or even a P&L - they only understand cash.

Bottomline, the litmus test of hyperlocal in its present form shall be when the discount moneys get throttled. For then, the true-convenience buyers will remain. It will still be a sizable market, but maybe not as infinite as it is projected to be today. If there is a better source of inventory somewhere in the market, hyperlocal shall provide it consumer access. If there is better inventory that customers don't know about, hyperlocal can address that gap. Eventually, determinants of success shall include easy-to-use powerful technologies, control on product and service quality and the final challenge of jumping orbit to the first two buckets of unique or hard-to-find inventory.

[previously published in ET Retail on Dec 24, 2015]

Oxygen Toxicity and Delusions in the Startup World

As a startup consultant, I meet talented individuals all the time who aren't worried about their competition being better than them, but only about them being "better funded'' than them. I see the focus on mad scale (politically-correctly called 'traction'), losing money to get bad customers ('the acquisition cost vs. lifetime value' illogic), confusing expense with investment (the month-on-month myopia) and battling everyday problems caused by the easy-availability of money. We've all heard of too much of a good thing, and that too much oxygen kills. Of late, we have seen a spurt in articles bemoaning the damage investors are doing to the startup industry and yes, this is another one of them. I had written an earlier article that urged entrepreneurs to postpone external infusions till needed, but I realize the problem is now bigger - if you don't take that money, someone else will.

Let's look at various aspects of what's going wrong today.

1. Entrepreneurs, employees, vendors, agencies, sellers and customers are getting spoilt:

• Entrepreneurs are trying to be hares that sell-off the future winnings of their race before the tortoises catch up. They also feel flying business class to attend conferences in the Silicon Valley is the most important action point.

• Employees think the company pays them to make glorified mistakes and learn (to glorify them better next time). They feel justified telling others they quit because the company didn't invest enough / wasn't aggressive enough.

• Agencies pitch ideas that make for great insightful investor-relations' decks, and have a flimsy chance at best of ever being executed.

• Sellers think the (funded) business has to compensate them for their own faults.

• Customers feel they deserve a 110% discount, plus 90% cashback and no-questions-asked returns with a coupon for their next purchase. The threat to post on facebook gets them an additional birthright coupon. 

• And everyone's in on the party. Stones and mangoes are getting delivered, parts are being replaced, fake notes are being paid with, and so on - you get the point.

2. Everyone's trying to run faster than the tiger:

• No one's asked for a one-hour delivery, but companies want to build that. Now they want to build one-hour returns too. All being equal, faster is better - but if this costs 10X normal delivery, we customers prefer the cash discount.    

• Well yes, we used to like bubble-wrap, but now we have enough. Don't keep sending us 5-inch scratch-guards in a 5-liter boxes full of air.

• Businesses are really discounting more than needed. If the rate for in-city logistics is INR 50 / Km, 'aggressive' businesses are now starting their pitch with INR 25 / Km. Yes, they manage to discourage others - but only to accelerate their own eventual troubles.

3. Expenses are winning over Investments:

• Companies talk of customer acquisition costs as if customers can be acquired; as if they'll stay on when the huge discounts go away. We all know what happened when email providers tried charging for services. The same, no surprise, will happen to the latest Unicorns too when they charge real money.

• We are customers. We know we won't stick around when the fair's over. Investors should also know this. Market share today isn't equal to, or even related to, market share tomorrow.

But you know, the most dangerous of all implications, the one that may be most destructive for us once the funding boom-times are over, is that

    

4. Untrue truths are being taught

• Money is never the bottleneck

• Ideas are commodity, what is important is to scale fast 

• It is okay to fail - you learn more when you fail, plan to fail fast and pivot 

• You are in the business of creating value - not buying and selling

• Build GMV, profits will follow

• Customers acquired through freebies will repeat organically 

• Real-estate on the mobile is expensive and has to be paid for

...and so on. One could go on in such Unicorny Lingo forever.  

The fear is that when the party's over, and it's time to wake up and smell the coffee, some of today's whizkids may wake up with a permanently distorted view of reality. 

Originally published in ET Retail on November 9th, 2015

The frenemy question for Google, Facebook and others

The internet is rife with talks of Facebook and Google entering eCommerce. While they have both dabbled with the idea of doing stuff on their own through Google-Shopping or Facebook Virtual-Goods, they seem to be going the 'buy-button' route. What this means is that they, and their advertiser-eCommerce businesses, will need to face the Frenemy Question.

Both these companies learn and earn a lot from eCommerce, where they're risking a change of position from partner to competition by going deeper into the purchasing funnel. eCom businesses on the other hand depend a lot on Google and Facebook for their traffic and app-downloads. Once the app is installed, these two aren't that important, but just given the existing eCom penetrations (let's say sub-1% in India to a maximum of 6-7% in large developed markets and just-maybe a couple of exception-markets at 10%), the task of bringing new people online will remain important for a long time. That means Google and Facebook have a huge role to play even in the app-only world that some eCom businesses are trying to morph to.

Now Google and Facebook are just the biggest examples, but we know every other business from Pinterest to Twitter to WeChat is in some way considering getting into the eCommerce play if they aren't already in. Last year in India saw everyone from Gati and HDFC and Airtel and PayTm all announce plans to get into eCommerce. Unconfirmed reports surfaced about anyone and everyone - from payment companies to wallets to logistics to large retailers to brands to distributors all trying to create their own eCommerce destinations.

The moot question is why - is it just for the valuation multiples? Or is it a genuine belief in being able to make a positive difference in the way it's done today?

And the other question is if the role that these companies are trying to play as end-to-end eCommerce providers creating more value than the role they play today?

Let's consider this, a typical company here is a platform

• that multiple eCommerce businesses plug into,
• that everyone's customers share data with,
• that sits in the "revenue-positive" (read 'money-making') part of the value chain,
• that has its risks spread wider than the success of any one business it services

And now it's moving to a situation

• that is far away from making money today (apologies for the generalization, but I'm sure you get the point)
• that is a task of creating unfamiliar competencies
• that is a high-risk grow-big-or-go-home space today,
• has irrational hyper-competition

...and so on.

To make it worse, it's an either / or decision. It is difficult to be a service provider in an industry one competes in oneself. And this may be a big difference between a Google and a logistics provider. Most eCommerce sites, which have money to spend, may not have an alternative but to spend money on Google - they might just get a bit cagey about what they share, but they'll have a choice of moving completely away from a logistics player who they perceive as a threat. And that's a big aspect to consider.

In the end, the point is that this decision to encroach on your customers should be led by more than the prevailing multiples. It should be a function of your bargaining power, your eCommerce skills and insights, and most importantly, your ability to forsake the part of your existing revenue and trust that may go away - forever.

Published in ET Retail on October 8, 2015

Knowing If, When and How to use NPS

If you run a business, I’m sure you measure lead indicators like customer-satisfaction, intention to repeat, net-promoter-scores and so on. A good question to ask when you are setting up these metrics is, are you measuring the right metric. To be clear, this is not one of those NPS-bashing articles - there’s enough criticism of every model including NPS but that’s a separate topic for another time. The question, for now, is whether measuring NPS adds value to your business - assuming the model delivers what it promises.

Well, it truly depends on what makes the business grow. If you are in an eCommerce-in-India situation now, measuring customer NPS is a great idea only if promotion or word-of-mouth is indeed the main source of new buyers. If more people are coming through SEO / SEM or the pull created by TVCs, one should measure those metrics instead. Measuring seller-NPS, though a common practice, is to my mind useless if not harmful, because if sellers start having a great sales or experiences on a platform, they don’t necessarily want more sellers to come and join the party. Most new sellers don’t come to a platform through recommendations from other sellers.

• Do you want to grow the business? Sometimes companies keep measuring NPS for categories in intentional decline. Needless to say, it’s a waste of resources.

• Does the business grow primarily through buyer-growth? If building repeats is the idea, just ask customers how likely they are to repeat. Do not ask them how likely they are to promote your brand to others. Wrong questions give you wrong answers.

• Do new buyers come primarily through recommendations? If your buyers are coming through search or ATL-awareness, then NPS isn’t your biggest worry.

• Are you looking to measure business health? Then you should ask more relevant pointed questions rather than an overall question.

• Is NPS valid for you? I mean, if you do believe customer growth is key for market-share growth, and also that new customers come through promotion by existing customers, do you see correlations in the past data of NPS and market-share? If you don’t - there’s a big problem. You need to check for correlations and causality with other metrics and see if you need to change your reasoning itself.

One final word of caution. NPS is indicative and directional. It is used only because it is a consistent and comparable way of looking at net promotion. For any real insight to come through, you will need to deep-dive into possible reasons for promotion, detraction or even staying passive. And then when you have these insights, you’ll have to close the loop through follow-up actions, the effectiveness of which can be measured through your next NPS survey. To cut it short, unless you have the intent, bandwidth and resources to do the deep-dives and follow-ups, measuring NPS in isolation will just tell you if you’re doing well or not, but not why or how to improve. And that, to my mind, is a complete waste.

Is it time for Rural-First eCommerce?

Are we trying to sell English-Language classes through ads printed in English? The funny bit is, if you look around you'll find a lot of language institutes trying to do just that. It isn't just funny, it's a sad waste as well. And that brings us to our burning question. Is it time for rural-first eCommerce?

A lot of critical determinants of an eCommerce model vary between urban and rural markets. Customer evolution, internet speeds, language proficiency, retail expectations, buyer-seller-distance, supply-chain infrastructure - to name a few - vary between urban and rural areas. Hence the obvious fact that rural and urban eCommerce may need different approaches.

I'm not speaking of inventory itself - that's relatively simpler. We already know rural customers may have a stronger preference for battery life and ruggedness with respect to heat, humidity, dust and power-quality. We also know regional brands and designs may have a higher acceptance. I'm also not talking of translation or even of the different expectations (and realities) on delivery time, customer-care etc. I'm speaking of stuff that's tougher to pin down.

There is the complexity around color, font, language, dialect, idioms, syntax, imagery and visual design. If you ask typical rural populations in India, you might find they prefer the orange-colored Micromax phone with the loudest ringtone to the Vertu, and the Su-Kam inverter print-ad to the understated Apple ad. If you want to know what works for rural, look at the posters political parties make. They may not be the most elegant works of art for you and me, but they work for the rural masses- and much better than a Benetton hoarding.
And then it gets more interesting.

Rural isn't 'one' market. Urban, interestingly, may well be - most large cities turn cosmopolitan and while they do retain a bit of local flavor, urban markets tend to be more homogenous than rural markets. Each rural market may have its own unique idiosyncrasies. There is some media commonality so one may expect similar demand-trends, but the regional influences could be stronger than global cosmo ones. In the colorful south of India, people may prefer pristine whites while in the bleak Thar or Rann of Kutch, the preference may be for mirror work and applique in rich colors. Spending could me more linked to the 'actual ' harvest than the harvest festival as per the calendar. The differences by religion, caste and occupation could be more pronounced. Matriarchal and patriarchal societies could respond to different communication.

Now imagine one business that starts of by adapting its global platform and processes, and another that starts from a region, say the North-East of India - the more local business could well be better-suited for local success. Its challenge would be scale. The global business may have better scale, but if it doesn't resonate with the customer, it'll have a tough time succeeding. The business is not about - crudely put - discounting mobile-phones, wrapping them in miles of bubble-wrap and Fed-Exing them. The challenges could include the following:

• The translation challenge: from today, when everything from the website name to search-experiences and item-details are in English, how do we go to being easily understood by populations who may understand English less or differently - the answer may either lie in language adaption or in language-independence (visual / audio web etc)
• The custom-experience challenge: from uniform all-India prices, promises and T&Cs, how do we vary our promise of the best-possible for each taluk or tehsil, and how do we deliver, say, local language customer-support from a centralized location, how we get the items there and the cash back; also the business may need different measurement-norms on COD%, return-rates and so on
• The inventory challenge: how do we get to the portfolio that is closer to actual consumption
• The hand-holding challenge: how do we get people comfortable with the idea of digital commerce, where the initial levels of exposure, DIY and comfort with change vary from urban populace

The long-term game is about creating local or language-independent experiences, generating custom prices, delivery times and T&Cs on the fly, selling sattu, gamchas, lanterns and fertilizers, building financing, supply-chains and reverse supply-chains, getting customer-care to talk in the dialect and so on - while still aiming for economies of scale. A lot has become easier with soft keypads on touch-phones, transliteration and translation tools etc, but a lot more needs to be done. The big promise is that once these engines are built, they may well end-up being applied to urban niches as well.

A lot of this will remind you of the mass-customization paradigm. It is simple, but not easy.

The way ahead may be complex, but is certainly interesting. More than economic potential, it has the promise of separating the innovators from the me-too's, the talkers from the doers, the wheat from chaff - much more than the comparatively-less-complex urban eCommerce.


Previously published in ET Retail on July 29, 2015

The Changing World of a Shopkeeper

All of you have followed the developments around eCommerce, local commerce, daily-deals etc. as businesses. All these businesses to some or the other degree depend on the traditional shopkeeper as the supply source. eTail is probably the model that depends on him least, because it can go directly to the source, the manufacturer or the large distributor, but it still needs shopkeepers in some categories where the aggregation of demand, like in auto-accessories, happens at the shop-level. Or when one needs services like installation that the shopkeeper can provide. For local commerce, the shopkeeper is the backbone, as it is for many businesses for daily-deals.

Truth be told, most traditional shopkeepers think of themselves as being in the business of moving boxes and managing cash. They haven't really thought of themselves as entities for digitizing supply, taking pictures and writing product descriptions. They also don't think of themselves as being in the business of delivering goods, though most of them do it for some percentage of their orders. Most of them don't have MIS or ERP systems and they manage inventory through heuristics. They don't know how to manage feedback on digital platforms. There are therefore significant challenges in them making the transition to the supplier digital businesses will look for. And it's a lot more.

A traditional shopkeeper may make his money in fairly unstructured ways. He would buy in bulk on credit or against a cash discount for volumes he has back-of-envelope (or back-of-hand) calculations for. He can then weigh goods approximately (erring on the side of less sometimes), pack it in an old newspaper, have it delivered through a person who may be below legal age or statutory salary, do pure cash transactions where he does not provide a receipt or pay taxes, or through credit where he has some leeway on the month-end calculation, and so on and forth. One is not saying adulteration or substituting lower-grade loose commodities is a norm but that too is possible. Each one of these activities adds up to margin. The result is a profitable business that loses value once it gets 'organized'.

And that is where a big problem exists.

Today digital businesses are not only expecting this person to agree to tax scrutiny or accept credit cards, or to install a POS software and MIS, but - what is more important to keep in mind - we're also expecting behavior change, which, as all of us know, isn't easy. A shopkeeper today may be happy getting 5% additional sales through local commerce, but one day he may not deliver his order and not even be apologetic about it because in his earlier world, it was okay to tell the customer he forgot, or his delivery boy came back late from lunch, or that the electricity went off, or the bicycle had a flat tyre.

Online businesses are in the business of structuring this market, of making promises that are kept and of assuring quality and timelines. We must remember the chain is as strong as the weakest link. If we create a middle-layer that will cover-up for what may go wrong, we risk becoming a different business - one that carries inventory of its own, has its own delivery, answers queries on behalf of shopkeepers and resolves problems on behalf of customers and eventually costs more than the efficiency we are seeking to create. So that not being a sustainable option, the other workable solutions involve handholding, education and behavior change.

And that takes a while. When we set up companies that depend on the shopkeeper keeping his promise, this is something we should keep in mind.

[note, this has been previously published in ET-Retail on July 1, 2015]

When Money is bad for Business...

All of us know money is a great friend in need when it comes to business. The whole investor business stems from the insight that money is no longer the scarce resource it used to be, and the infusion of external money into a business can accelerate a business many times more than the organic reinvestment of profits can. Imagine a unit-profitable business growing as a straight line from year to year - spending more money than the business has earned can bring the EBIT line down below zero for a period, but then it reemerges a few years later much higher than the straight line did. So far so good, so what's the twist in the tale?

There’s another angle to money, which is not so nice. There’s a reason many parents aren’t giving their children easy money (Bill Gates too, you’d know). Money can make one lazy (e.g. I'll get to work but let me recharge my batteries first), but more seriously, could cause delusions (e.g. I’m popular because I’m charming and not because I’m rich). Similarly in business, having more money than you need can destroy you. Let me illustrate how.

Let’s say you’re running an eCommerce business today in India. Let’s assume the low prices on your portal are partly due to the efficiencies of your model (good sourcing, no inventory, bulk-breaking, private-labels etc) and partly due to discounts on top funded by the business (marketing discounts, signup benefits, app-download incentives, site-wide discounts, co-funded cashbacks and so on). There are no points for guessing which of the two is more difficult to achieve. Now what happens in a cash-rich company is that the first approach is simply considered a waste of precious time that could instead be spent on multiplying the GMV numbers through, to put it crudely, bribing customers to buy.

In other words, the availability of money will drown the intelligence and effort your employees and partners invest, which bad news. The other issue, which is also non-trivial, is that businesses that live through hard times gain a lot of resilience, efficiency and humility. Hard times are as necessary for these learnings as sunlight is for the production of vitamin-D. Just because the investor market has been good yesterday and today doesn't mean you don't create a shock-proof business.

The last bit is about rich businesses who say they run themselves as if they are poor - it's a really difficult thing to do - it's like dieting with a fridge-full of goodies. If you have smart employees, they know how much is in the bank, so towing a hard line will just lead to lack of trust.

What is easier, and much better, is to go the old-fashioned way. Postpone the flood of money. You know your industry dynamics, so do what you have to, but whenever possible, ensure money is raised and used as late as possible (which will also reduce dilution of ownership to a minimum). Try raising and using money for investments (like building a better product, or fulfillment-infrastructure) rather than expenditure (like spending on discounts), and try valuing the "build-for-tomorrow" people in your organizations, the "don't-spend-everything-today" people in your organization who are getting less heard each day.

Initially published in ET Retail on April 29, 2015

Does every business need a Mobile App?

As we all know, the news is full of terms like ‘mobile-first’, ’mobile-only’, ’app-only’ and so on. Most websites one lands on are either recommending you download their app, or in some cases pushing the app. If players like Myntra and Flipkart are going app-only, if PayTM wants to do mobile-only Commerce, and if everyone else from Amazon to Ola to Uber are offering you app-only offers and discounts apart from a big incentive to download the app. Every other advertisement on the television, from Freecharge to Foodpanda, just talks of the app. It clearly looks like big-business. But is the app the only way to go?

If we can shut out the marketing noise, there’s another way to look at this - which is probably the best way to look at it. That is to put ourselves in the shoes of the consumer. Here are a few questions we should ask ourselves before jumping into the mosh pit.

• Are most of your buyers new or old to the category and your site, its promise and experience? If you’re expecting new users to download an app just to try your experience, you are expecting a lot. Once the user finds consistent repeat value in your offering, then and only then would an app be considered. I’m not talking of the case when you are paying the user a huge amount in coupons or free-rides to install an app - that’s a different discussion for later.

• Trivial point, but do most of your present and potential users have access to enough data bandwidth to download and upgrade the app as required?

• Are most of your present and future consumers use the smartphone to purchase your product or service?(note I’m not saying have a smartphone because, broadly speaking, everyone will) If the user is looking to compare tech-specs of four speaker-systems, or insurance products, is he likely to do that on the mobile screen? If your service is a research-led choice, is the mobile screen even big enough for that decision to be made? Do remember mobile customers are fickle and disturbed by calls, SMSes and chats, are frequently on the move, have varying bandwidth, and so on. So do some data analysis on existing users, and some research on potential ones.

• Does your category have the repeat-rate that demands an app? If you are a taxi provider, yes. If you’re an insurance provider, no. If you’re into real-estate, then prepare to be spend a lot to convince people the app is a better choice than web, and prepare to be uninstalled the moment the decision is made. Please don’t expect the consumer to install and maintain and not delete an app that is used once a year, or once in a lifetime - like a wedding-planner-app.

• Is your category search dependent? If all journeys start with a Google search, it may be more important to have updated web-pages for Google to index.

• Sad-but true - real-estate or screen space on the phone is quite limited. It does not allow for too many apps - apps of lesser relevance will be deleted. So do ask yourself if your app could be in the top-10 engaging and relevant apps for your target-group across all the other apps he may have installed. If you’re an mCommerce player and you feel you have the most engaging app, it may not still be enough. Do ask if you can compete with Whatsapp and Facebook for real-estate.  

• Do ask if you’re going app-only because it’s cool. If you think push-notifications will change your life, or geolocation will, or just that the consumer can refresh the page by shaking his phone - do ask consumers first how much they value these features. Do remember the Segway was cool, so was the Concorde. Both can’t be called successful by any shot. Of-course, your slick site navigation is best experienced on a native app, but does the customer make his purchase decision based on site navigation? Or is it something else, like better supply or prices? Wouldn’t you rather invest in the key drivers of his decision?

• Finally, do check with industry experts if your reasoning is on the app business is correct. The app is not simply permanent freedom from having to pay Google. It takes money to build and maintain, more money to market your way to install, app-store-rankings, feedbacks and so on. Discoverability of new unmarketed apps is limited to truly unique and extremely useful apps. If you pay for an install, to complete the loop in the first point, you could just be offering a free-ride before an uninstall happens.

Do remember the PC-web could be boring, but it’ll stay as long as laptops are selling, as long as offices are operating, as long as smartphones have small screens and tedious ways of typing long text, including 16-digit credit card numbers. If you think you can circumvent Google by an app, do remember it’s the Android app-store rankings that’ll make the app sell. You’ll still need to spend on installs and usage, so it’s just replacing a problem with another. Nothing in life, including an app-install, is permanent. The battle is never over.

So what should you do in the meantime? The best thing to do could be to gather usage and preference data from your present and potential consumers. If the mobile looks like a promising area of investment, check if a mobile site, or a responsive site serves the purpose. Then if the answers to the questions above convincingly point towards an app, the subsequent step would be to seed an app, but not go off web or mobile web.

To sum it up, do remember good Strategy is sometimes about saying no to obvious choices when they don’t make sense for you. It is also about not following the crowd and sometimes about choosing the non-fancy traditional option. If you choose to build an app, it has to fit your users and your category. If you choose not to concentrate on the web or the mobile web, then it’s more dangerous. If you choose to forego avenues of growth where most of your users are today, you’d do that at your own peril, and to the benefit of all your competitors.

Ps: The internet has long-arrived, and the TV still isn't dead. Neither is print, by-the-way.

Initially published in ET Retail on April 29, 2015
Related post: Is it Wise to go Mobile-Only?, March 8, 2015

The pitfalls of free-shipping

Every eCommerce blog in the world will sing paeans in favour of free-shipping. It does make decision-making easier for consumers on one hand, and on the other, it does have a cost. There is no such thing as ‘free’ shipping, first-of-all. It is being paid by the consumer in many cases as the cost gets bundled into the product price, or it is being absorbed as a marketing cost by the seller or the platform.

That said, let’s take a look at how free shipping is being implemented today. A seller from, let’s say Gurgaon, is instructed by marketplaces to list articles on free-shipping, so they work out an average cost of reaching out to potential customers, wherever they might be, and add it to the product price they want - not knowing where the buyer might be. This seller could end up with a consumer who lives next door in Delhi but alas, thanks to free-shipping, the buyer has to pay the average all-India price. The seller could be, for all we know, using a worst-case-price - so the Delhi buyer is either paying the Kanyakumari shipping price, or worse and more likely, not converting.

Try this the next time you travel - do prices on your favourite eCommerce site look different whether you are checking them from Mumbai or Bangalore? Try feeding in your PIN-code, and all you’ll know is if COD is available to you - the price of the article won’t change for you. You know why? Of-course you do. It’s again thanks to the glory of free shipping. eCommerce platforms have so far steered clear of optimising the shipping cost for the seller-buyer PIN-code pair. Why bother optimising something that’s free, right?

Wrong. Like we said before, there’s no such thing as a free lunch - sorry, shipping.

This current business of flying pen-drives and sunglasses across the country is not sustainable. This was fine if Indian eCommerce were on the retail model and thus, free to ship from the nearest location, but today most Indian players, for regulatory purposes at least, are marketplaces. Most eCommerce sites are thus making the buyer select the seller along with the product on a buy-now button. What the buyer wants to select is price and shipping time. There is, therefore, a huge need-gap that needs a solve. In most cases, buyers are getting their products more expensive, and much later than possible.

How it should work is simple. The sellers should be asked to input the price they want for their article, and a logistics solutions provider (LSP) that the eCommerce platform works with should be asked, on-the-fly, to provide the price and delivery-time given the pick-up and delivery PIN-Codes. Sure, if you want things simple for the buyer, by-all-means show a single price that’s the sum of the product and shipping price. What happens as a result is:

• the price shown is more accurate, and fairer to the seller, shipper and buyer
• items closer to be buyer are automatically prioritised (wether sorted by price or time-to-deliver)
• shipping distances are automatically reduced
• prices for the same article are different in different cities, which is how it really is if one were to remove price distortions
• every loss that’s a function of transport time e.g. shrinkage or loss in transit, transit-damages etc. get reduced

End-result is that buyers get their products not just cheaper, but also faster and in a better condition.

We must remember that eCommerce adds value by providing a wider selection and more convenience. Shipping across unnecessary distances, adding costs, delays and damages are not consumer benefits but costs. When the current heavy-discounting regime falls, customers will see that the emperor is not wearing any clothes. That, will be an uncomfortable day, and a heavy price to pay - for free shipping.

Previously published here.