 "Late-mover advantage")
If vending of commoditised products such as books, audio and video CDs and travel is seen as something of a first wave of e-commerce, urging consumers to go in for high-touch or big-ticket products online - such as electronics, jewellery, fitted garments and custom-made furniture - could well represent the second wave of e-commerce. But for companies involved in this second wave of e-commerce, the going ahead or falling back will be determined not so much by the old formula of price, convenience and range of products. The new players face significant consumer purchase barriers that have to do with product education, look and feel, try-on - things that need to be identified and addressed through sustained technological innovation and unrelenting customer support service, if these players are to convince customers to favour them over the high street.
The Strategist has consistently brought some of the best practices in this space to its readers. As the news wave establishes root, we see a large chunk of players veering towards a hybrid model - a mix of inventory-led and marketplace models or a cross between online and offline models. Niche categories like jewellery and furniture - that are low on volume but high on value - have emerged trying to marry the best of both worlds. What is common is the premise on which these businesses are being build - namely, get into high-margin low-clutter categories, offer a limited product portfolio but the best customer experience to consumers who appear willing to wait a tad longer to get their hands on unique or customised offerings.
Clutter-free is hassle-free
Try to think of three big online retailers across the world that sell jewellery. Difficult? Okay think of one. A goose egg still?
Don't feel sorry for yourself. Even today all the major online retailers around the world including Amazon hardly sell any jewellery. In fact, Chinese portal Zbird and US-based Blue Nile figured as the only points of reference when we started researching this category. That's one fact - that the sector was relatively untapped in India (founded in 2007, Chennai-based Caratline which clocks an annual revenue of Rs 100 crore is BlueStone's closest competitor) - that convinced Gaurav Singh Kushwaha, founder of online jewellery store BlueStone, that this was where he wanted to be. Kushwaha saw that in India brand shops of market leaders like Geetanjali and Tanishq were the biggest sales channels in jewellery. In late 2011, when leading players, including Flipkart were toying with the idea of migrating to a hybrid model (skewed towards managed marketplace), Kushwaha decided to throw his hat into the ring. He says, "In jewellery, the supply chain demands a completely different value addition. You cannot possibly stock high value gold and diamond jewellery in a warehouse."
After receiving seed funding of $5 million from venture capitalists Accel Partners, Saama Capital and TutorVista's Ganesh Krishnan and Meena Ganesh, Kushwaha set up a manufacturing unit in Mumbai. That bit was probably easy compared to his problems thereon.
Picture this. Bluestone has 600 designs in gold and diamond rings. If the company were to stock all these designs in 20 sizes in 14, 18 and 22 carat gold, a sizeable portion of the seed money would have been used up just in building that inventory. So he had to think differently. Now BlueStone starts putting together a piece of jewellery only after receiving an order on its website. Around 60 workers have been employed at the manufacturing unit; it takes three days to manufacture one piece of jewellery, add another three days for shipment (the company covers 50 cities currently).
Unlike other hybrid models in which quality checks (QC) happen once the consignment arrives at the fulfilment centre, at BlueStone a seven-step QC has been put in place for different stages of manufacturing. Currently, while the company spends 2 per cent of its annual revenue (Rs 35 crore, 2012-13) on logistics, its margins hover between 25 and 30 per cent.
The portal also incorporated customer feedback faster. Initially the customers complained of discrepancy in what they saw on the portal and what they received. BlueStone improved its display and used models to showcase its collections.
Time is a window of opportunity
As bizarre as it may sound, the online shopper is now willing to wait longer for deliveries of customised products, provided the product satisfies her expectations. At least that's what founders of furniture portal Urban Ladder discovered early on in their careers. Says co-founder and COO Rajiv Srivatsa, "A sub-segment of the upper-middle class wants a certain degree of design precision and that's what we set out to provide."
The desire to ship pan India right from the day of launch is an addiction hard to kick and the founders of Urban Ladder gave in for some time. When customer delight went for a toss in search of reach, in August last year, the company decided to pull back all deliveries overnight from warehouses in different cities. Since then the portal has focused on catering to Delhi, Mumbai, Pune, Bangalore and Chennai through its six supplier hubs.
Similar to BlueStone's model, a large part of furniture in Urban Ladder's portfolio is made to order. Urban Ladder's in-house design team supports its vendors by sharing expertise from time to time. The inventory arrives at the company's warehouse and is later shipped on the customer's address after QC. Its current shipment window is 15 to 20 days.
As things stand, sofas account for 25 per cent of the portal's overall sales.
The portal has kept its catalogue limited to 25 categories and a sharp focus has gone into creating a clutter-free interface. One may argue that buying furniture online is unrealistic, but that's the paradox, say experts. Pragya Singh, associate director, Technopak, explains, "A model like this will work in the long run. This is because their delivery time is not very different from time window of 10 days - average time taken by a brick and mortar store to deliver customised furniture."
So far, almost every player operating in inventory-led model is forced to give heavy discounts to get rid of distress inventory. Urban Ladder has decided to stay out of the discount game by keeping its inventory under check. In fact, the company has a special discount for customers who pay upfront and for delayed deliveries. With 100 orders to process daily, the company is now directing its attention towards streamlining logistics and bringing new subcategories in furniture.
Mixing click with brick is fine
If you really think about it, lifestyle brand American Swan is one of the rare examples of a pure inventory-led model. Started early this year with a seed fund of Rs 40 crore from Four Cross Media, a global digital media conglomerate, the company began its journey by venturing into online and offline channels simultaneously. Director and CEO Anurag Rajpal says American Swan's hybrid business model was designed to cater to today's brand-conscious online shopper while de-risking the business to some extent by building presence across both online and brick and mortar stores. For American Swan the trick lies in keeping the turnaround time for new styles really short. It's in the lifestyle business remember?
In the 11 months of its operations, the brand has introduced new collections of men's and women's wear and other lifestyle products around eight times across the two channels. The brand is also available on other multi-brand shopping portals. Offline, the brand is present in 130 multi-brand outlets across 15 states. The company claims that the ratio of its online and offline business is 50:50. Says Rajpal, "It is necessary for businesses to move towards more positive transactions. Quality and pricing will continue to be the key differentiators."
All the companies discussed above have one thing in common: they sell all the products (manufactured or sourced) under their own label. This means that American Swan, Urban Ladder and BlueStone had to focus on building their respective brands from Day 1. Another common factor is at play here: none of them has made the expensive jump onto TV to advertise their offering. These players realised early on that a high-spillage mass-media burst will not take them far in an industry with the rare profitable company. Says Rajpal, "To build an aspirational, affordable and accessible brand we focused on a strong digital and social media strategy right in the beginning of our journey." American Swan went big on display marketing. The company has already spent around Rs 6 crore on various digital campaigns this year. Besides, as part of its Young Achiever's campaign, the company roped in actor Shruti Hassan and cricketer Unmukt Chand.
For Urban Ladder, marketing cost is static. "Television is impossible to measure and leads to an unnecessary burnout of resources," says Srivatsa. "So far, we have focused on our social media presence to keep our customers updated on latest offerings," he adds.
BlueStone has found an interesting way of building its brand through word of mouth. The company is incentivising customers who are spreading information about the brand on social media. For instance, if a customer writes a testimonial on BlueStone's brand page, she will receive a discount of the next purchase.
Evidently, while most of the obvious e-commerce opportunities appear to have been seized in the first wave, there are many second wave opportunities still out there. And categories with a 'tailor-made' sticker certainly look like the proverbial Noah's Ark of retail during a slowdown. Just remember that in e-commerce, like in every other form of commerce, it is only those companies that have a strong consumer proposition that get a ticket to ride out the storm. Needless to say, those that don't will drown.
EXPERT TAKE: Yu Yu Din, Head, digital strategist, Genesis Burson-Marsteller
The Strategist has consistently brought some of the best practices in this space to its readers. As the news wave establishes root, we see a large chunk of players veering towards a hybrid model - a mix of inventory-led and marketplace models or a cross between online and offline models. Niche categories like jewellery and furniture - that are low on volume but high on value - have emerged trying to marry the best of both worlds. What is common is the premise on which these businesses are being build - namely, get into high-margin low-clutter categories, offer a limited product portfolio but the best customer experience to consumers who appear willing to wait a tad longer to get their hands on unique or customised offerings.
Clutter-free is hassle-free
Try to think of three big online retailers across the world that sell jewellery. Difficult? Okay think of one. A goose egg still?
Don't feel sorry for yourself. Even today all the major online retailers around the world including Amazon hardly sell any jewellery. In fact, Chinese portal Zbird and US-based Blue Nile figured as the only points of reference when we started researching this category. That's one fact - that the sector was relatively untapped in India (founded in 2007, Chennai-based Caratline which clocks an annual revenue of Rs 100 crore is BlueStone's closest competitor) - that convinced Gaurav Singh Kushwaha, founder of online jewellery store BlueStone, that this was where he wanted to be. Kushwaha saw that in India brand shops of market leaders like Geetanjali and Tanishq were the biggest sales channels in jewellery. In late 2011, when leading players, including Flipkart were toying with the idea of migrating to a hybrid model (skewed towards managed marketplace), Kushwaha decided to throw his hat into the ring. He says, "In jewellery, the supply chain demands a completely different value addition. You cannot possibly stock high value gold and diamond jewellery in a warehouse."
After receiving seed funding of $5 million from venture capitalists Accel Partners, Saama Capital and TutorVista's Ganesh Krishnan and Meena Ganesh, Kushwaha set up a manufacturing unit in Mumbai. That bit was probably easy compared to his problems thereon.
Picture this. Bluestone has 600 designs in gold and diamond rings. If the company were to stock all these designs in 20 sizes in 14, 18 and 22 carat gold, a sizeable portion of the seed money would have been used up just in building that inventory. So he had to think differently. Now BlueStone starts putting together a piece of jewellery only after receiving an order on its website. Around 60 workers have been employed at the manufacturing unit; it takes three days to manufacture one piece of jewellery, add another three days for shipment (the company covers 50 cities currently).
Unlike other hybrid models in which quality checks (QC) happen once the consignment arrives at the fulfilment centre, at BlueStone a seven-step QC has been put in place for different stages of manufacturing. Currently, while the company spends 2 per cent of its annual revenue (Rs 35 crore, 2012-13) on logistics, its margins hover between 25 and 30 per cent.
The portal also incorporated customer feedback faster. Initially the customers complained of discrepancy in what they saw on the portal and what they received. BlueStone improved its display and used models to showcase its collections.
Time is a window of opportunity
As bizarre as it may sound, the online shopper is now willing to wait longer for deliveries of customised products, provided the product satisfies her expectations. At least that's what founders of furniture portal Urban Ladder discovered early on in their careers. Says co-founder and COO Rajiv Srivatsa, "A sub-segment of the upper-middle class wants a certain degree of design precision and that's what we set out to provide."
The desire to ship pan India right from the day of launch is an addiction hard to kick and the founders of Urban Ladder gave in for some time. When customer delight went for a toss in search of reach, in August last year, the company decided to pull back all deliveries overnight from warehouses in different cities. Since then the portal has focused on catering to Delhi, Mumbai, Pune, Bangalore and Chennai through its six supplier hubs.
Similar to BlueStone's model, a large part of furniture in Urban Ladder's portfolio is made to order. Urban Ladder's in-house design team supports its vendors by sharing expertise from time to time. The inventory arrives at the company's warehouse and is later shipped on the customer's address after QC. Its current shipment window is 15 to 20 days.
As things stand, sofas account for 25 per cent of the portal's overall sales.
The portal has kept its catalogue limited to 25 categories and a sharp focus has gone into creating a clutter-free interface. One may argue that buying furniture online is unrealistic, but that's the paradox, say experts. Pragya Singh, associate director, Technopak, explains, "A model like this will work in the long run. This is because their delivery time is not very different from time window of 10 days - average time taken by a brick and mortar store to deliver customised furniture."
So far, almost every player operating in inventory-led model is forced to give heavy discounts to get rid of distress inventory. Urban Ladder has decided to stay out of the discount game by keeping its inventory under check. In fact, the company has a special discount for customers who pay upfront and for delayed deliveries. With 100 orders to process daily, the company is now directing its attention towards streamlining logistics and bringing new subcategories in furniture.
Mixing click with brick is fine
If you really think about it, lifestyle brand American Swan is one of the rare examples of a pure inventory-led model. Started early this year with a seed fund of Rs 40 crore from Four Cross Media, a global digital media conglomerate, the company began its journey by venturing into online and offline channels simultaneously. Director and CEO Anurag Rajpal says American Swan's hybrid business model was designed to cater to today's brand-conscious online shopper while de-risking the business to some extent by building presence across both online and brick and mortar stores. For American Swan the trick lies in keeping the turnaround time for new styles really short. It's in the lifestyle business remember?
In the 11 months of its operations, the brand has introduced new collections of men's and women's wear and other lifestyle products around eight times across the two channels. The brand is also available on other multi-brand shopping portals. Offline, the brand is present in 130 multi-brand outlets across 15 states. The company claims that the ratio of its online and offline business is 50:50. Says Rajpal, "It is necessary for businesses to move towards more positive transactions. Quality and pricing will continue to be the key differentiators."
All the companies discussed above have one thing in common: they sell all the products (manufactured or sourced) under their own label. This means that American Swan, Urban Ladder and BlueStone had to focus on building their respective brands from Day 1. Another common factor is at play here: none of them has made the expensive jump onto TV to advertise their offering. These players realised early on that a high-spillage mass-media burst will not take them far in an industry with the rare profitable company. Says Rajpal, "To build an aspirational, affordable and accessible brand we focused on a strong digital and social media strategy right in the beginning of our journey." American Swan went big on display marketing. The company has already spent around Rs 6 crore on various digital campaigns this year. Besides, as part of its Young Achiever's campaign, the company roped in actor Shruti Hassan and cricketer Unmukt Chand.
For Urban Ladder, marketing cost is static. "Television is impossible to measure and leads to an unnecessary burnout of resources," says Srivatsa. "So far, we have focused on our social media presence to keep our customers updated on latest offerings," he adds.
BlueStone has found an interesting way of building its brand through word of mouth. The company is incentivising customers who are spreading information about the brand on social media. For instance, if a customer writes a testimonial on BlueStone's brand page, she will receive a discount of the next purchase.
Evidently, while most of the obvious e-commerce opportunities appear to have been seized in the first wave, there are many second wave opportunities still out there. And categories with a 'tailor-made' sticker certainly look like the proverbial Noah's Ark of retail during a slowdown. Just remember that in e-commerce, like in every other form of commerce, it is only those companies that have a strong consumer proposition that get a ticket to ride out the storm. Needless to say, those that don't will drown.
| 4 WAYS TO BUILD AN ONLINE PRESENCE |
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- Focus on communities and geographies
An online brand must start by understanding the community it is reaching out through its products and services. See how the targeted community is reacting to your messages on various social media platforms. Facebook can provide information about age, gender and geography of your customers. Since niche shopping portals are largely catering to customers across top five metros, Facebook's data on metros and Tier-II cities will be handy in creating city-specific deals. On the other hand, Twitter is harder to segment and should only be used for broadcasting.
- Talk to the influencers
Today every business is watched closely by bloggers, industry experts and celebrities who have a huge following across various social media platforms. Niche players must reach out to this set and turn them into brand advocates. Klout Score's (an app that uses social media analytics to rank users according to online social influence) rankings can be used while taking this call. A Klout score between 60 and 80 is good enough for building reach. Use a combination of Klout score, follower count and their conversation patterns while choosing your brand advocate.
- Keep talking sense
Research has established that engagement levels on Facebook and Twitter dropped dramatically when brands only used the platforms to push their offerings. It is all the more important for an online brand to speak to its online communities through relevant stories. For instance, a furniture brand can speak to the parents on how to pick the right furniture for the newly-weds. Or they can engage existing and prospective customers by providing tips on furniture maintenance. Similarly a jewellery brand can organise an online chat with a jewellery designer.
- Be prepared for contingencies
Word of mouth can be overwhelming and at times can work against a brand. Niche players may go out of stock because of high demand which can affect their credibility. Take ownership when the chips are down. Spearheaded by co-founder CMO Leo Widrich, Buffer communicated with media, customers and their greater social audience instantly. Barely 20 minutes after people started talking about spam tweets and Facebook posts appearing on behalf of some Buffer users, the platform sent its first tweet acknowledging the problem. Andy, a Buffer representative, tweeted in response to each and every mention it received at the peak of the crisis. All the while, the company staff was also communicating across their blog, Twitter, and Facebook to ensure customers knew how things were unfolding away from their eyes. Customers later praised the company for its transparency and timely communication.