What's next for modern retail?

I have come across the modern retail industry a lot in the last half a year and I thought it’ll be best to start my contribution to this blog by sharing a few perceptions on it. I’ll talk about the two issues that I think, plague the industry and will come to the forefront in a short time.

We all have witnessed the growth of modern retail over the last half decade. The shift has been enormous from a time when our parents visited the weekly Mandi to this day when the neighborhood store from ABG/Reliance or Mr. Biyani has become the obvious choice. Leaving apart the hypermarkets, let’s see what the supermarkets have tried to do. These stores try to capture the market in the radius of 5km, from the kirana/general stores by offering same/cheaper prices in a better environment and also giving the shopper an opportunity to assess the products on the shelf unlike a kirana store. The only two areas where a kirana store had an upper hand were a) the provision of credit & b) the benefits coming from the fact that you dealt with the same guy every time (bargaining/he knows what you buy etc).

While the credit issue was well handled through tie-ups with banks and offering credit cards that earned you reward points, the second factor was and is still troubling the stores. This, in my opinion is the first issue that will impede the ascent of the industry (let’s forget about the real estate and funding issues for a moment). The management sitting in a board room planned as to how they will tackle the issue and voila, came the solutions like well-trained staff & attractive uniforms. But, such initiatives have to be implemented effectively at the grounds rather than being discussed in the boardrooms. If you haven’t noticed it yet, next time you visit one of the stores please do try to see how helpful and aware the employees are and you might figure out what I mean. For a fact, I have seen the staff of Reliance Retail beating up a group of 3-4 customers over a petty issue and I’ll leave it at just that.

The second area that needs attention is the use of business intelligence in this industry. It’s not very difficult to understand that this is a very data oriented industry with every transaction of every consumer being recorded. The SKU type & the category type data have to be put in and then there are daily/weekly/monthly price discounts or bundled offers. We have done well in recording all this information but where Indian retail players need to gear up is using analytics efficiently by embedding them into their day to day decision making. I worked on one such project this term for my course – ‘Business Analytics & Intelligence’ where we created a market basket for a retail store based on the transactions over a period of two and a half months. We started out with the goal to find out ‘associations’ across all the transactions. What this meant was looking for a combination of products in a particular bill that was bought repeatedly. This task introduced my project group to two tools (both are add-ins for MS-Excel) namely, XLMiner and Microsoft’s Shopper Basket Analysis Tool. Both require different kind of input but the first add-in has a limitation. The free demo version can handle only 600 rows of the excel file. Considering that you have lakhs of transactions, that’s a limitation that cannot be dealt with. On the other hand, MS’s tool is a blessing for any category manager or a retail store manager. Its output gives you the percentage of lift that a product gets because of another product(s) and that is how you know that bundling product X with product Y or placing the category A adjacent to category B would result in higher value for the store.

Use of analytics in online retailing by players in the developed markets is a case in point that the stores can achieve a much better level of efficiency through employing tools that help in unlocking the door to understanding the consumer behavior. Many analytics firms like Manthan Systems have realised the potential of this opportunity and are catering to the BI needs of retailers across the geographies.

Let me conclude this post by saying that to succeed, the modern retailers need to excel at both the qualitative and the quantitative aspects of the business and the two concerns that I've mentioned are exactly at the extremes of these.

Just read through the comments at the following link that I picked and you’ll know what magic analytics can do. Happy Reading!

https://www.insightcommunity.com/case.php?iid=1188

Bedi.

P.S. - Next up: "Loss Leaders @ Big Bazaar" & "Growth of Private Labels"

Attacking the leader

Almost every company strives to be number 1 company in its area. Everybody wants the bigger share of the pie. GE had a company policy to be number 1 or number 2 in every business area they operate in or exit that business. In this article we will discuss the approach company should adopt to attack the market leader and garner market share. There are broadly three strategies to attack market leader and companies can adopt anyone or combination of these.

Strategies

1. Open War: In open war strength of the market leader is attacked. There are ample examples of this kind of warfare. Some companies were able to succeed and some failed by adopting this strategy.

Virgin cola: Virgin openly attacked Cola giants by entering in their segment. Visuals shown make the strategy of Virgin loud and clear. This open war proved to be futile as Virgin cola was only able to reap 1% of the market share in fizzy drink segments even after 5 years of its launch.

Nirma: HUL left some gaps in the product line of washing powder by not having any product at the entry level. This innocuous folly was exploited by Nirma to the maximum which took the giant head on by launching detergent on national scale.

Ujalla: Ujalla was able to dislodge Robin blue from its market leader position in whitener segment by launching a better liquid version of the product. Robin blue reacted by launching liquid version but by then the damaged had been done.

Microsoft Xbox: Microsoft launched its Xbox against market leader play station Sony. It was priced lower than the Sony and Nintendo. This strategy to garner more market share by lowering price proved hazardous for all players in the market. Neither was Microsoft able to garner high market share and nor it was able to profit from this venture. At the same time Sony and Nintendo margins were also badly hit.

IE Explorer: Microsoft virtually cannibalized Netscape after launching its own browser, apparently by resorting to unfair practices. This is a classic case of a bog giant taking lesser mortal head on and finishing it.

Bingo: ITC launched its potato chip in a segment dominated by Pepsi’s lays. Through some innovative advertisement bingo was able to gain 15% market share in less than 3 years of its launch. In this case two giants confronted each other and eventually settled by sharing the pie with each other. ITC is also challenging big FMCG by launching products that directly compete with products of these MNCs.

2. Focus on Niche Areas: Instead of taking the market leader head on the company may decided to go the territories that are still unexplored. Market leader’s focus on these territories is low and risk on being swallowed by market leader is relatively less.

Red Bull: Instead of taking the cola giants head on Red Bull decided to focus on energy drink segment. By the time coke realized the potential of this segment and launched Vault against Red bull, it was already a big brand and market leader worldwide in this category. According to estimates Red Bull has more than 50% share in the energy drink market.

One important difference was also the way Red Bull went about its promotions. Instead of TVC it relied more on unconventional routes of advertisement like Bars, events etc. This strategy made sure that it is not attracting attention of big cola giants.

Skype: Skype is also into telephony like Vodafone and MTN, but it works on completely different technology. Due to this it virtually faced no competition from these big giants and carved a niche area for itself. It was acquired by Cisco for whopping amount.

3. Indirect attack (Guerilla warfare): This ploy was adopted by Ujalla to hold on to its share in the cloth whitener market. Jyoti laboratories figured out that Mortein is the cash cow of Reckitt & Benckiser. They hit them by launching low cost mosquito repellant products and reduced their focus on whitener market.

Choice of Strategy

Choice of strategy is a big question with no clear answer as it depends a lot on the management of the company and risk they can afford to take. Based on the examples given in the previous section following are broad parameters which can be looked upon by companies before taking decision.

1. Direct attack

a. Companies with deep pockets and good cash flow from other product lines can take the leader head on. For e.g. Reliance due to its sheer resources was able to make inroads in the mobile service market in India. It is a number 3 operator by number of user now.

b. Better product/huge price differentiation: The companies having product which gives much more value to the customer than the existing products at equal or lesser price can make an attempt to attack the leader head on. But these companies must keep one thing in mind that their offering cannot be imitated by market leader easily. Because if market leader is able to copy the offering than it the beat the small competitor because of its distribution network and brand equity. Nirma was able to challenge HUL on the basis of huge price differentiation.

2. Niche areas

a. Middle and small size companies: These companies do not have the deep pocket to compete with market leader unless they have much better offering than the existing offerings. These companies should look for new territories instead of taking on the leaders head on. Economies of scale are not too important in these areas as small companies will seldom achieve them.

b. Patented technology: Small companies with unique product offering can take the market leader head on. The unique product must be perceived by customer as something which adds more value as compared to existing products. This happens in Pharma space where even small companies because of the patented technology are able to compete with biggies and even beat them in their own turf.

3. Guerilla warfare: It basically involves hitting the enemy at some unanticipated area. This strategy can be adopted by any company depending on the object it wants to achieve.

Caveat: It is very important to anticipate the reaction of the market leader while adopting any of these strategies.

Review: Strategic Windows by Derek F.Abell

Every business model or strategy has a shelf life. That winning idea on which the companies are banking on for the last many years will not remain a winning idea forever. There is a time window during which company will be able to mobilize its resources to meet the market requirement. Author has referred to this window as STRATEGIC WINDOW. This window is open till the time there is a good fit between the market requirements and company’s competencies. Once the window closes down the competitive advantage is lost. For e.g. Dell for the last 10 years has been banking on direct selling model. Model was working beautifully until last 2 years, when it began to lose its steam. Now Dell is also working on retail model to push its products. One can say that every business model/strategy has a shelf life.

Now companies are able to make incremental changes to tune themselves to the changing business environment. But sometimes they are unable to envisage the magnitude of the change happening in the market and hence become incapable of coping with it.

Author has give four possible reasons for this change. One reason is “New Primary Demand”, which essentially means that even though a company might be a pioneer in a particular market, it might not be able to cash on the new opportunities offered by the same market. Other companies which entered late might be able to serve those opportunities better. It may be called as second mover advantage. For e.g. though 3M has been pioneer in developing new markets, Unilever has been to better understand the market created by 3M and deliver better value proposition to the customers than 3M.

Second reason could be “New competing technologies”. Eveready continued to manufacture non rechargeable batteries, when the market was moving to the chargeable batteries fast and eventually lost the market share. This is a classic case of new technology making older technology obsolete. Same may happen to Moser Baer if they don’t move to new DVD format in the coming time.

Third reason is “Market Redefinition”. Under this one case is where customer prefer end to end solution rather that going for piece meal approach. Niche players sometimes loose to big players on this front. Fourth reason is “Channel Change”, which happens due to changing customer requirement s and market dynamics. For e.g. with internet becoming house hold phenomenon in Tier 1 and Tier 2 cities, Travel agents are facing a hard time. Due to internet means of deliver has changed and travel agents are no longer handy.

Apart for these four reasons there could be plenty of other reasons which might lead to change in the market requirements. Some of them are changing demographics, Globalization, rising income levels and many more.

The concept of strategic window comes in handy for both existing business and new entrants. Using this concept they can better time their decision to mobilize or demobilize the resources.

Existing businesses can find out if they are capable to mobilize the required by the changing market or should they exit the business. New entrants can find out the right time to enter the market. It should be the time when market requirements and companies competencies are in sync with each other.

Two Great Marketing Propositions

In marketing every day one comes across new fundas and jargon. I believe that some of this gyaan is able to strike a chord with your heart. Today I will be talking of two such things which struck a chord with my marketing perspectives. One of the revered marketing gurus delivered a lecture on these on Ted.com, which is a legendary platform where masters of different genres share their own perspectives.
We also know about product diffusion curve. We have innovators, early adopters, early majority, late majority, laggards. As a marketer one tries to get the attention of all these categories. It was argued that we infact don’t need to spend our money and time to attract members of every category. We can achieve our purpose if we are able to target innovators, early adopters. Now this may sound trivial, in the sense that everyone knows about it. But have you ever wondered how many marketing managers actually implement this? My hypothesis is, “very few”. There are difficulties involved in identifying true adopters and innovators but as they say nothing comes for free. One has to spend time and money to find these people and market your product to them. There are few things like innovative product high on differentiation which is taken for granted here. If we can identify these people and market our product only to them, they will make sure that the product is propagated to other categories because of their innate characteristics which compel them to preach about the stuff they own and like.
Now imagine a situation where laggards adopt the product before early adopters and innovators. This is invariably lead early adopters and innovators to shun the products as they are the leaders when it comes to embracing new products and ideas. They can’t see others taking their coveted position.
These two propositions were somehow able to convince me to the core. Your thoughts are invited.

Why MBA

In my previous posts I have always criticized Masters of Business Administration course and its usefulness. This post will be a welcome break.

During any MBA interview "Why MBA" is always asked. Lesser mortals like us have limited foresight of the future and we end my giving cliché answers. Few top answers are

1. I want to be an entrepreneur

2. I am a Manager in the Making

3. I want to expertise in Finance, so on and so forth.

I will present my perspective on this Legendary Question. I would like to start by squashing myths about Entrepreneurship and MBA. MBA can never inculcate entrepreneurial traits in anybody. Though, it can easily take them away. It is because of the inherit structure of the whole MBA course. You will learn Marketing, Finance, HR, Ops, Systems but not entrepreneurship. Best route to be an entrepreneurship is to become one. Nothing else matters.

MBA for me is about following things.

1. Change of Perspectives: As an undergraduate or working in the technical arena the way we look at things is different. For example 3 years back when I used to see an aircraft I used to think about the great engineering effort that must have gone into building it. Formula 1 was the mother of my imagination. But now Formula 1 is more of a brand to me rather than anything else. WWF now is a legendary because of the way they market themselves rather than anything else. You are able to appreciate a TVC commercial, in a new manner.

2. Environment: I have always believed that the culture and environment around you changes you as much as you change it. When you are among bunch of smart people, who talk about MBA fundas all day night, they way you perceive things also change. The Environment helps in transition of Technology oriented mind to business oriented mind, which is an important goal of MBA. One is better able to appreciate important terms like Positioning, Market risk, Prime lending rate…

3. Meeting Business leaders: Meeting and listening to top business leaders can influence your thought process more than anything else. As a part of MBA program one gets ample opportunities to meet these great thinkers. It is also about the self realization that happens after meeting these people. You tend to get overwhelmed by the vision they have. In the process seeds of great traits of these leaders are also sown in your heart, ready to bear fruits in the coming years.

4. Professors: These angels can change the course of your life, literally. They don't influence your thought process but in fact make it. Everyone must have had overwhelming moments listening to these great academicians. They introduce you to the world of Business. They hold your hand and walk you through complex jargons of MBA.

Ideas/criticisms are welcome, as always.

Experience Management and Leadership @ “The Apprentice”

I would like to start with a brief introduction to “The apprentice” for all of you who do not know about it. It is reality based TV show in which 15 candidates compete for one job for 15 weeks. All the candidates have impressive credentials, with some leading their companies and some with best education in the world from the likes of Harvard, Boston, and Cambridge et al. Some are street smart high school dropouts as well. The Job is to run one of the companies of Mr. Donald Trump who is a biggest real estate developer of New York City and owns more than 100 companies. Mr. Donald trump is a great leader and is highly respected for everyone in USA. He enjoys a true celebrity status.
All of what has been said by me would not be making any sense if I miss this word, which is the spirit of the whole show, Leadership. There is a great emphasis of leadership qualities and the respect a leader should command from the team.
As management students we have read a lot about Leadership. We have tried our best to define it, understand the spirit of it and lots more. But personally I was not able to appreciate it, until now. I had a vague idea of what leadership is. Also we read about “Type A” personalities, different types of leaders which some with dictator like qualities and some who believe in engaging their team and lot more terms which have started to sound more like a cliché by now.
Now here is one TV show which has got everything into it, which can enable anybody to understand and experience all the jargon they come across or have read text books of management. Prima facie it may look like any other TV show where people come together, compete and somebody wins. Its Business orientation differentiates it from all other shows. The tasks of the teams are complete related to business and nothing else. For all of the tasks along with business sense one should have knowledge of demand supply principle, pricing, consumer behavior, marketing, advertisement, sales, value proposition to the customer and lot more. The judges for all these tasks are top executives from HUL, Pepsi, P&G, Levis jeans, depending on the nature of the task.
I will give you the glimpse of few tasks that teams undertook:
Design and new bottle of new flavor of Pepsi, Design a new advertisement campaign for Levis, Market and sell new burger from burger king, Develop a piece of real estate, Set up a restaurant and get the best user review
All these tasks need great leadership skills from the team leader, which is chosen for every task by the team. Now lots of time leader has to operate in the background and sometimes he/she has come in the front. Sometimes if someone is not doing a good job you have to decide whether to go for a change as time is crucial in every task. There is lots of back stabbing, maligning, strategy, creativity involved in every task. One should know how to manage “Type A” personalities, which perhaps is as tough as anything could be.
I have had many overwhelming moments while watching this reality show. I am sure that what I have learnt from this show is much more than what I learnt from the management text books for the last one year. Watching this TV show has again made me wonder, if we really need a management degree to be successful in business of it’s the practical experience which matters more.

Business @ “Smoking points”, “Drinking places” & “Golf courses”

One day one of our distinguished Professors said that Business (B2B) is all about managing authenticity and building trust. I liked that statement but was never able to appreciate it. I used to think that business is about making great presentations, excellent communication skills, strategies, jargons, business suits et al. It’s about big conclaves, meets where people meet, know each other and do business with each other.

The moment of truth came few backs weeks when even after working (internship) for a big MNC I realized that ground realities are totally different. Real business is about everything but whatever I have mentioned earlier. It’s all about building trust and managing authenticity.

Now the logic is very simple and goes like this. If I have to buy something from you, which can be anything product or a service, I will have to put my money on you. I will have to rely on you to deliver. In short I will have a strong dependency on you. I you fail I am also bound to fail. So you have to win my trust and confidence in order to convince me to put on money on you.

One thing is for sure that one can’t win the trust only by making great presentations and speaking flawlessly in a posh boardroom. You have make connection with that person. You will have to come across as someone who is real and serious about the whole affair. You have to tell him that even your stakes are quite high in this whole affair.

At middle management level I have observed few platforms where people really connect like anything, though I don’t endorse any of these platforms. First one is “smoking points” outside the offices. This is a place where a sales person and his prospective client will fag together and discuss the things openly in non threating environment. If sales person is able to make connection he will win the deal and probability of making connection increases many folds at places like this. Until few weeks back I never believed in this but now I am convinced about it.

Second is “Drinking places”. These are the places where real business happens. Under a bit of influence of alcohol one is able to trust each other better. Also the mask people wear becomes somewhat transparent which facilitates making connection with the other person. This place is a real ice breaker.

I think these are the two places outside board room where people test each other and decide if they want to do business with each other. Now these are the points where business involving small to medium amount of money happens. There is one more place where big deals happen, the “Golf course”. According to one survey 20% business happens on golf courses. I have no personal experience in this as yet but I will share my perspective. On a golf course big industry honchos come together and discuss things in a relaxing environment. They try to understand each other. They test each other’s game and see the kind of energy and passion other person has. Then they decide if they befit for each other or not.

I would like to conclude by saying that few other things like your culture; integrity; values etc do help in managing authenticity and building trust but they rather are the things which one ought to have if he/she wants to be a successful businessman.