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

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

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. 

Is it wise for eCommerce to go Mobile-Only?

After PayTM’s mobile-only launch, Myntra, and reportedly Flipkart is going mobile-only. While there is no debate wether it makes sense to build mobile web / apps, does it make sense to forego the PC experience, and in time the mobile-web experience? That is a tougher question to answer. 

It is certainly a brave decision. The future is mobile. Some claim the future is apps and no m-web. There could be some truth there, but the real question would be on the benefits of going off the PC/mobile-web completely. Let’s take the PC-web question first. 

Focus could be a key point gained. There’s significant upkeep one could avoid, but the PC experience is already build for most players, and is easier to build if not. The PC experience does have advantages - much more decision-information on one screen, an experience users are used to and so on - and there may actually be a segment of users used to the PC experience who is not used to the mobile experience. On the other hand on mobile there are significant unknowns - it’s something that is evolving as we speak. But that said and done, mobile is a significant portion of the eCommerce future. But it is not 100% by any projection.

And again, the same question - would it be wise to discount the benefits of the PC-web? Is there something inherently distracting or destructive about maintaining the PC experience? One could always build a responsive experience where one has a shop-front for every access-point. The engineering doesn’t need to be different - and while smartphone numbers beat the PC numbers by a mile, those aren’t population numbers, just ship-outs. I haven’t seen the Comscore numbers for mobile-access since very few Indian eCommerce sites are covered or unified, but I believe the page-view and minute numbers would be much lower than the 50-90% traffic claimed by most eCommerce sites - this percentage is most probably the visit percentage. And we know how GMVs are not that closely linked to just visits.

Arguably, the quality of experience on a PC still beats the mobile today. There are enough pointers to lower conversion on mobile - smaller screens, more impulse less mission mindsets on an average, reluctance to use complex payment schema (read non-COD), a fresher TG and so on.

The worst reason to go mobile-only I heard recently was that app-downloads increase when a website goes down - does that even sound like a long-term strategy? It’ll only be a spike - we all know it’s about being most easily accessible across all channels for existing and new users - that’s religion unless you have a reason better than those above. More app installs is a nice metric, but one has to watch the cost at which that comes. If your cost per install is already way higher than the user’s lifetime value, the last thing you’d want to do is add the cost of lost-GMV to it - GMV lost-to-competition to be precise.

It gets worse. Some players in the Industry today don’t want to fire their engineering or product resources. They just want these people who were hired and trained for the PC-web front-end to start creating apps. Not fair or productive, I’d say.

There’s even more. The advertising story is less effective on the mobile-app. If a business wants to make money from space-selling like Alibaba does, the mobile just offers no real-estate for it. On the PC screen one can cover even three-fourths of the screen and still have enough space left to showcase the item to be sold. 

One could argue that while it is okay to reduce or even stop the investments on PC-web, it could be foolish or even dangerous to discount it as a past that has completely ceased to exist. I believe the comfortable-with-PC shoppers will take a bit of time to change and may not like the fact that their favourite website isn’t asking for their opinion or offering a bridge to the future. What will happen, in my opinion, is that affiliate websites will have a party once they are the only route to the inventory on the PC-web. And we all know that’s 5-10% more expensive a sale. 

Is it wise to put all your eggs in either basket is the question. Is it wise to forego an established paradigm and exit the field in favour of competition while taking a bet on the (almost) entirely unknown is the question. What do you feel? 

Sub-Segmenting Cash-on-Delivery

I’m sure we must have all read enough about the immense COD business in India. Estimates of this market’s size vary between 50% to 70% of the entire eCommerce opportunity in India. Interestingly enough, I’ve seen many businesses talk of this segment as just One segment. How can two-thirds of your market be just one segment? It seems natural to peel layers here. There could be various gaps and opportunities to be unearthed if we stop seeing this entire COD opportunity as one market, with similar consumers, needs & wants, drivers & barriers etc. 

India is supposed to be amongst the most cash-intensive economies in the world. India has more than twice the number of bank notes in circulation compared to the US, at a fraction of the GDP. The bank-notes to GDP ratio stands at 13% - which for most countries is 2.5-8%, and this proportion is rising in India.

Too add further perspective, India has also not had a history in catalog shopping. Far from it, India’s traditional retail has been next-door. Most commodities were bought on touch-and-feel - the current pre-weighed flour and pulses is a very recent and marginal phenomenon, and paid-for after a month’s free credit. Banks have always ‘rewarded' savings with sub-inflation interest rates. Tax avoidance has been, and is, common. Retailers commonly charge more for card transactions over cash. Just the amount of India’s black-money stashed abroad runs into billions. There’s more stored in real-estate, gold and sometimes just wads of notes buried underground. The phenomenon is bigger than the broad cash-for-convenience label that’s put on it. 

Specifically for eCommerce, I think there are various subsegments including, but not limited to, the following:

• offline buyers: These are genuinely financially-disconnected buyers who do not have access to instruments needed for online transactions - they may have internet access but not online banking, credit or debit cards, or digital wallets. 
• cash economy buyers: There are people who earn and store money in cash, and for whom a digital transaction involves first depositing cash into an account.
• convenience-led buyers: The most-well known segment perhaps, but to note, there are two key sub-segments here. For these buyers, either the use of cash, OR the process of cash-payment is convenient. COD is often if not always a faster transaction with lesser steps. The trade-off on convenience is of-course that (some)one has to be present at the time of delivery, which is inconvenient to some, but everyone defines convenience differently. Particularly of note is the case of the mobile buyer, who finds it hard to input 16 digits, sometimes twice, then the CVV, then exit the app and go to his SMS inbox for the OTP, then come back and complete the transaction- often on a small screen and sketchy bandwidth. COD is a single-click option in comparison. 
• trust-deficit buyers: These are people trying out a platform that they’re not sure about. Maybe they don’t trust the product that they are buying, or the service that the platform will deliver. Once it’s delivered properly, and the packet is opened, they feel comfortable paying.
• post-paid buyers: These are people who simply prefer paying after. Simple. These could technically do a card-on-delivery transaction as well if incentivised to. Unlike the trust-deficit buyers who won’t pre-pay for a specific reason, these buyers are on a default setting of post-paying. They need a strong reason to even consider pre-paying. 
• impulse-buyers: These are buyers who are not sure if they want to buy the product. They often click on buy, sometimes to check the final price, and they don’t take it seriously enough to cancel the transaction (for them refusal of delivery is as good as cancelling the transaction. The subsets of people ordering expensive things for ‘fun’, or to try out the experience belong here
• remorse-affected-buyers: Let’s be real. Many a buyer continue their price-research even after their purchase is done. More often than not, a buyer either discovers a cheaper source or worse, the price of the same article on the same website drops. It is tough to feel like a fool. It is easier to order post-paid COD so that one retains the right of refusal, and the bargaining power.   

Naturally, all these segments are similar symptoms of different diseases with different treatments. If one wants to expand or reduce or even understand the COD phenomenon, one needs a finer lens.   

What do you think?

What constitutes "good" inventory?

Is "good" inventory a lot of things to sell? In a marketplace context, we often speak of one platform having better inventory than the other. Please correct me if I'm wrong, but this is often a statement that comes out of an inside-out view. Let me try and explain. 

My usual method to feel the elephant in the room, regular readers know by now, is to ask questions. So, when we say a platform has good inventory, do the customers also say that? Is buyer-feedback good enough on this topic or is non-buyer feedback equally if-not-more important? Let's take an example of shirts. If you have a million shirts and none in my size, do you have good inventory? If you have a million in my size but none that I like? What if you have a thousand that I like in my size and like the ones I like, and I'm not able to find them using your search and browse? What if I find what I need but I don't like the price or terms of delivery? Feel the elephant? Isn't it bigger than we imagined? The end of all these paths is no sale. 

But like they say, no two silences are the same since both could be the absence of a different word.

Let's get the basics out of the way. Having a lot of products to sell, on the shelves, is not a guarantee to a perception of good inventory. Second basic, the perception we just mentioned, is reality. There is no other sense of 'good' or 'bad' inventory. Third, all enablers we keep worrying about - having the right sellers or suppliers on-board, getting them to list everything they can - are all just that - enablers, and the customer doesn't think of those as inventory. 

Consumer in, the first thing to build would be Demand. If the consumer doesn't want it, or is not aware that the category exists on your platform, why even bother? The second could be findability. Through browse or search, the consumer must be able to find or discover the product. The third bit could be decision-tools if needed (spec-compare, shade-match, size-converter etc) along with the completeness of range (could mean SKU coverage for standard cataloged products and width otherwise). Then there is the catalog itself, or listing quality if the category is uncatalogued - often a stumbling block for marketplaces. And the picture still isn't complete without the all-important wrappers of price, payment and delivery terms. If all matches, and these don't, it is still, after all the effort, not a sale. 

Before we link a perception of bad inventory to bad sourcing, therefore, we should check for where the funnel is broken. It is possible for customers to, rightfully, feel you have bad inventory for more reasons than that. 

The Concept and Problems of Modular price

The new Honda City in India has been launched at a price ranging from 7 Lakh to 14 Lakhs. It has the usual variations of engine-types, interior-options, accessories and so on. Airline tickets come with an insurance that's bundled but if you search, there's a small radio button to exclude the insurance mark-up. There are strong views that unbundling the price is buyer-friendly and more than that, is seen to be transparent. And yet, there are as many examples of prices that are not modular.

You can't order a Dominoes' pizza without the 30 minute guarantee though, it makes sense to imagine, that pizza could be served for less since the risk of free-if-not-within-30-min payout will then not be bundled with the 'base price'. Why is the  price-guarantee-markup not unbundled then? Only Dominoes will know the answer, but I'm guessing it's because the guarantee has become the brand. In some hotels, they'd love to over-charge you for the mineral water, but they think it works better if they hike up the price of the room and give you the water free. What you see is all there is - so Daniel Kahneman says.  

There could be another factor though - breaking a price into three could mean three separate decisions. It could mean confusion. When the buyer is not in the frame to give the decision so much time, it's not beneficial. Of-course when I'm buying a car, I have all the time in the world since it is, monetarily and emotionally, a high-involvement decision. So is a house. A holiday is sometimes not. I'm happy to purchase a 'package' because I really don't want to work for my vacation, especially if I can easily afford it. In the eCommerce world, giving the customer options could mean an extra in-between page in the checkout flow, three extra radio buttons, and an extra click. An extra click means additional drop-out. Traffic drops out at every decision-point in eCommerce, and sometimes it makes sense to not give the user that option to think so hard again.

The balance, in my view, is how one separates buying decisions into packages for segments - Amazon Prime won't ask you to select a payment option every time, it'll just ask you to pay up once and give you faster delivery every time. And for the buffet-lunch-types, just lay out the spread and allow them to choose their food, but don't make them decide and pay at every step.

Ability or Agility - what matters more?

I'm sure most of you made up your mind on the answer, as soon as you read the question. The small proportion of you who still don't have their answer to this are probably people who always answer with 'it depends'.

The truth is the many people have a strong point of view here. And in my experience the answer depends on where we are from, in an industry and experience sense.

From the perspective of an organization Ability is a more tangible thing to build. We need to execute a set of initiatives in the coming years, which need certain capabilities, which stem from certain competence and so on - clear. Agility is more vaguely defined. It's more talked about in a relative sense, or in a 'I know it when I see it' sense. For many organizations, it's about cross-skilling the employees, which mostly means a policy of job rotations, and a capability view of the employee superseding the experience view.

One thing is clear to me - agility follows ability. I have seen organizations where job rotations happen annually. The head of the company is there by virtue of being the head of marketing before, and he got there because he was head of a different function before. The number three person in sales used to be a number three person in service. While these people have great cross-functional understanding, they sometimes do not get enough time to build functional expertise. The other extreme, is the much cited organization where people super-specialize and finally know everything about nothing - so much so that employees can't speak each-others' language.

What is the best approach depends a bit on the industry and the competition too. In a startup environment in a budding industry, one maybe needs to build a team that knows something about everything. If on the other hand you're competing in a mature industry at the efficiency game, then you need functional and domain specialization.

Finally, to re-emphasize, I'm not against job-rotations or the culture of building for agility - just that each layer in the pudding takes time to set. If we're replanting our plants very often, they don't grow so well, if they grow at all.

Are Discontinuous Purchasing Funnels a norm in eCommerce?

We all talk of the customer journey or purchasing funnel at some point or the other. There are models that start with awareness. And some models start at basics like ability, opportunity and motivation to define the universe before that. Then from awareness, there is interest, there's decision and action. Multiple models exist to talk about similar flows. Then there are models that talk of marketing building a flow of consumers to your store, visual merchandising bringing them inside and engaging them, supply-chain ensuring the product is on the shelf and sales to ensure the customer makes the purchasing decision. One needs to be good at all the funnel acts for awareness, or need, to culminate in a transaction.

If you have a broken link, all other good effort is wasted. Do good marketing, have bad product-development, and you only get dissonance or ridicule, but no transaction. We all believe in this.

Now the interesting aspect you see in eCommerce - what happens when your funnel is better or worse than someone else's? Can a good section in the funnel compensate for a bad section that is later in the flow? What happens if you have good awareness, a great product experience, the widest range, great decision-aids, but not-so-great prices?

In the offline world, of-course, there's a high cost for the consumer to switch. Just because the end of some retailer's funnel isn't the best, the customer won't walk out of the store, take the elevator to the basement, drive out his car after paying for parking, drive through crowds to get to another mall, park in that basement, take the elevator to another outlet, and start flowing through that other funnel. The online world, of-course, bridges distance.

There are five tabs simultaneously open.

It is no additional cost for the consumer to start product search in one tab, price search on another, feature comparison and expert advise on the third, and use a fourth tab for transactions. Post the advent of price comparison, at least for standard, definite, cataloged products, it is possible for an eCommerce platform to be best at nothing but prices and still do well on transactions versus another platform that provides the best decision-tools but higher prices. Now with the democratization of prices, offers and coupons, it has started affecting offline retailers as well, though their leakages for reasons talked about earlier are lower.

So, that is perhaps the lesson to be learnt. The parts of the funnel that contain key decisions are key. Everything else is not. When your website is good for everything else but conversion, then unpleasant as it may sound, you're not in business - you're just an affiliate.

Is there a nucleus, a critical mass for talent?

We all agree that there are always changes in the environment and the company's priorities. We also know that there's a need to continuously create new capabilities that never existed before. And we may have all seen that it's a tough thing to start creating a competence from scratch.

If there's no one in your company who knows Internet Marketing, you want to start hiring Internet Marketing experts. The question is how do you decide on the best candidate when you don't know enough to judge competence in that area. You hire the person who seems the best to you. You make a mistake and realize your mistake in six months. You give it a 'I-don't-know-how-but-fix-it' speech and give it another three months, then a last warning and another three. Then what? You have the same risk hanging on your head. How do you get around this chicken and egg?

Take another equivalent problem. Say you have IM competence and you, for some reason, start losing it. At some point, the people who are left start getting frustrated because no one in your company now understands what they do. Some start enjoying the vacation and start doing what they fancy, or even nothing. There's no one to guide and drive them. At some point, the IM folks don't have a gang and they lose interest and motivation. More people leave. Is that something that also rings a bell?

So here's the question, is there a nucleus needed for talent / capability? Is there a critical mass needed to make that talent-pool self-sustaining? And the other question, if you don't have a nucleus, what do you do?

Some companies try an agency model, some try and get experts on board to help out in hiring. Some just push good people in the company to acquire that missing competence through trainings. And are there ways to increase your capability mass? If you were to connect your IM people to IM folks in other countries within your company, or if you connect them to a similar community in another, non-competing company, does that delay the exodus?

Piloting Non-existent Concepts

One of the more interesting discussions I have had around Strategy is around Pilots. We all know that in general, and specifically in emerging or nascent markets, is that there isn't enough past data to base decisions on or to make business plans on. What you do in such cases is not research but pilots? Bet small amounts on multiple horses, see which horses win their first races, bet more on them and less on the others and so on till you have a winner.

Talking of Pilots, it is possible in eCommerce, more so in eCommerce than in offline commerce, to pilot out hypotheses. If you have a great packaging solution, try and see how the product does without the fancy packaging but discounted to that effect, check how the same listing does with or without CoD, or with or without no-questions-asked returns. If website / platform flexibility is an issue, one could try out the demand pilots purely on mailers. If one wants to know what's the sweet spot on prices or discounts, or the tradeoff between, say, faster delivery and price, it is possible to have two listings at different prices and different delivery timelines to check which one takes off faster in sales. It is then possible to dynamically alter the discount and the delivery timeline to check what's the point at which decreasing returns set in. And this brings us to the crux of this discussion.

How does one pilot faster deliveries - or any other offering we don't have and that takes sunk investments to build-out? We already operate on optimal delivery schedules. Won't we have to set up a separate infrastructure to create faster deliveries? And if we have to invest in setting up stuff, then doesn't it defeat the purpose of piloting the concept? We can't create a warehousing and pre-shipment infra and then conclude that faster delivery doesn't create value in the eyes of the consumer i.e. the consumer is not willing to pay more to get the goods faster. Then we can't roll back our investments to go back to what we had earlier.

Or maybe we can.

We could partner with a third party to create this experience for the pilot, but then the costs of doing this won't be representative. But there's something simpler we could do - which is not exactly the same thing, but quite useful for pilot results.

We can pilot slower delivery!

Now we'll put up two listings side by side, one with our standard price and delivery-time, and the other with a lower price but slower delivery, and check which one appeals to consumers. Versus a listing with an elevated price and faster delivery, this simulation will also give us results on what is the sensitivity on between delivery-time and price.

You see? There's always a way. When the ideal option is not possible to pick, pick the best possible option.

What are your thoughts?

Is Cash-on-Delivery really eCommerce? if yes, then what is (also) Mobile Commerce?

We've all read about how eCommerce is bigger than it looks. There are needs other than actual purchasing that eCommerce fills. Amazon, it seems, has overtaken Google in the US as the startingpoint of product-search. In order to make a purchasing decision, you need information, and an eCommerce site is (or should be, it is believed), in the business of providing the same. Therefore, what you can also do is also use eCommerce only for the purpose of decision-making, deciding what to buy, maybe even where to buy - but not actually buying. 

A recent BCG report ("From Buzz to Bucks") have called this internet-influenced buying.

What also happens is the reverse - people don't know what an Xperia J looks like, weigh or feel like, so they go to a mall, check it out, come back and purchase online where prices are better for the same standard product. This is split by consultants (naturally) into (guess-what) a 2X2, with segments called Research-Online-Buy-Offline, Research-Offline-Buy-Online, and of-course the other two blocks of people who complete the buying process Online or Offline. The transaction will be called Online or Offline basis where it is *consummated*. So this is the first thought I'd like you to hold on to.

The third thought is a simple question - is Cash-on-Delivery eCommerce? The "transaction" i.e. the exchange of goods for consideration really happens after the goods are delivered to the shipping address, acknowledged, checked and then paid for. The entire decision-making process and the commitment to buy has happened online, but the transaction is really offline.

Now the second thought is just an extension of the same logic to say there are people who extensively use the mobile phone to research, but then open their PCs / laptops next morning to transact - maybe because screens are larger, or keyboards are better, or connectivity is better, or just due to plain habits. The use case for the reverse is thinner but still non-zero. You could have used your laptop to make a decision (where you can actually compare four products'-specs side by side), and then used your mobile to monitor prices and then when you saw the price drop to the level you wanted - maybe you were on your way home then - you just clicked on 'Buy' on the mobile.

Now putting it all together, if you read this at one go, it will appear that Mobile Commerce is bigger than it is. If CoD is eCommerce (and rightfully so) then mobile-initiated transactions are m-commerce. That can help change perspectives of a lot of organizations in countries like India where we keep thinking m-commerce has not happened yet just because there aren't enough transactions culminated on the mobile. 

How different is "my" customer and "yours"?

So many brand discussions start with customer profiling. There are deep dissections on the difference between our customers and those of our competition. Our customer is more open to using her credit card online while the competition's customer favors cash on delivery. Our customer is older but more evolved. Our lapsers are more likely to be staying in big cities. It stops striking some of us after a point that we're using a cognitive shortcut by giving an identity to an aggregate average statistic.

More importantly, we forget that in many if not all cases, all these different identities are just one person. These many customers aren't different people who behave differently. Our customer also shops with the competition. Our customer is the competition's customer.

This is not trivial. We draw up pen-portraits, day-in-life's, mood-boards of preferences and so on and forth for these supposedly different characters. We do qualitative research around customer groups that are 'our customers' and 'our lapsers' or 'competition customers' to understand them better. If we see the same person turning up in two groups, we suspect incorrect recruitment if not foul-play and impersonation. How could the agency mix up our customers with theirs? Or customers with non-customers? Sounds familiar?

If there are more men in the people who end up converting on my platform versus my competitor's, this may show up as 'our customer is 70% male while our competitor's is 80% female'. I think it starts off being a small poetic license (the use of the singular) and ends up sounding inane. There is no one out there who is 70% or 20% male.

Reality check - it gives us great pleasure to prick this balloon with the pin of knowledge you had all along. These different characters with their distinct unique personalities are like the average man. Like the man with exactly the average height, weight, hair and nose-length - who doesn't exist.

These customers - yours and mine, are heuristics, short-cuts, simplifications - and just that.

What we really should be talking about, and thinking about - are different need-states. In one need-state, a customer prefers my shop and in another, my competitor's. That's really what it is.

If my eCommerce platform, for example, is great for technology products and not so great for lifestyle products, the same customer, in the lifestyle need-state is my competitor's customer and when in the technology frame-of-mind, is my customer. A frequent misread of this state is as follows: my customer is a technology buyer and the competitor's is a lifestyle buyer. Familiar?

So what?

A lot of things. Just as a starting example, do you think segmenting users or customers makes more sense now or segmenting need-states, use-cases or states-of-mind? Litmus - think of yourself, are you ever just one brand's customer?