 "In crowded marketplace, brands look to 'online only' route")
In November 2013, while discussing the re-entry strategy for India, the top brass at Motorola Mobility balked at the sight of competition. About 44 million smartphones were sold in the country that year (IDC estimates), up three-fold over 2012. (Total phone shipments in the country stood at 257 million units, up 18 per cent over 2012's 218 millions.) All major global brands - from Samsung to Sony, Apple to HTC - were in the fray besides a clutch of nimble-footed home-grown brands such as Micromax and Lava. In that scenario, the company surmised, speed to market could clinch it for a brand aspiring to grab even a minuscule share of the market. The only way to play the game, Motorola figured, would be to focus on price and distribution.
So after pricing its second-innings-opener Moto G's 8GB variant at Rs 12,499 and the 16GB at Rs 13,999, the company initiated talks with Flipkart to sell them exclusively through its online marketplace. That was certainly a bold step for a company that largely sold its mobile handsets through retail stores globally. Had it failed, everyone would have written off Motorola as being foolhardy. But to its amazement, Flipkart went out of stock within 15 minutes of opening 16GB Moto G orders for the first time and then in one hour the second time. The 8GB variant too sold amazingly well. Since February Motorola has sold over a million handsets of Moto G, Moto X and Moto E on Flipkart.
What are the lessons for brand marketers from Motorola's tryst with Flipkart?
Let us understand the groundwork a company needs to do before bringing its offerings to consumers through physical stores. The first option for a company looking to sell handsets through brick-and-mortar stores is to build its own distribution network. The second option involves roping in an established distributor. For instance, if an OEM is importing handsets from China, it has to first look for a national distributor who will make a margin on the deal. Regional distributors who come at the second stage of this chain will also keep a margin before the product makes it to a retail store. A third slice of the margin goes to the retailer. The overall channel margin ranges from 6 to 15 per cent. So a company looking to test waters or trying to knock-off the mark-ups along the way could follow in the footsteps of a Motorola or a Xiaomi, and enter the market through the online route (China's Xiaomi has an exclusive partnership with Flipkart to sell its flagship Mi smartphones). This cuts out overheads such as rent, salary of store staff and relevant IT infrastructure.
Had Motorola chosen to build its distribution network from scratch through the traditional channel, the price of its handsets would have gone up by Rs 3,000-Rs 5,000 in the least, claim analysts. So for a relatively late entrant, the compulsions for going online are understandable. But does it make sense for companies with well-established offline distribution networks to push their offerings exclusively through an online platform? The answer is an overwhelming 'no'. Explains Karan Thakkar, senior analyst, research at IDC, "In doing so, the company will end up upsetting the trade. This strategy is not good in a country where retail is big and largely unorganised."
It is not as if Motorola dismissed the brick-and-mortar channel right at the start. Says Amit Boni, general manager and country head of sales, Motorola Mobility, "It was a combination of scale and speed that reaffirmed our faith in partnering with the country's biggest e-commerce company." He has a point: Flipkart, the largest e-commerce marketplace in India, has close to 22 million registered users.
In Boni's opinion, selling exclusively online has also helped Motorola control pricing (here Boni is referring to the fact that the same product is listed on different websites wearing different price tags) and pass on the amount saved along the value chain to its customers. "Through traditional retail, it may take close to 30 days for a new product to percolate down the distribution channel. Additionally, since mobile handsets are sold in various organised and unorganised single- and multi-brand stores, the consumer experience is seldom standardised," he adds.
Sounds good, but what about reach? India's internet penetration data doesn't really paint a rosy picture. As per TRAI data, India's internet subscriber base stood at 238.71 million as on December 31, 2013. Though the number of internet users is high, internet penetration in the country is still much lower than most countries across the globe. The latest report from research firm eMarketer points out that India has had the lowest internet penetration growth in Asia Pacific at 17.4 per cent so far this year. What does this mean for a company toying with the idea of selling exclusively online?
Obviously, it will lose out on millions of potential customers who are not necessarily online. Next, this way of selling has no room for the most decisive part of shopping - touch-and-feel. The likes of Flipkart, Snapdeal and eBay may disagree with that contention because in last three years e-commerce has prised open two of the most touch-and-feel categories - apparel and furniture. They have an endorser in Motorola's Boni who says, "Our research shows touch-and-feel is overrated. Even if we consider organised retail, only a couple of stores allow consumers to try their hands on a real handset. Usually one gets to see a dummy phone." Agrees IDC's Thakkar, "Touch-and-feel is not the main criterion in decision-making in electronics anymore. Consumers are willing to spend online as long as the product is genuine and comes with manufacturer's warranty."
That said, Motorola itself might have underestimated the value of going online: it got the launch demand forecast wrong twice - first at the time of the launch of Moto G, and then again during the launch of Moto E in May 2014. Boni says the company managed to address only 40 per cent of the overall demand in the first two days of the Moto E launch. Given its experience, Motorola says, it intends to keep half a million units in stock for day one of the next launch. Indeed when Motorola Indonesia was working on the launch of Moto G in that country, it fell back on the experience in India to project sales and ensure there was no stock-out. Now the company is working on extracting valuable demographic data from the sales data on Flipkart. Motorola's association with the e-commerce company has also helped it generate user content relating to its new phones. At this point, there are more than 2.5 lakh reviews of various Motorola handsets on Flipkart.
Who wants to buy?
Post the successful run of Motorola and Xiaomi on Flipkart, many more companies are looking at this platform seriously and trying to slice and dice available data to understand the consumer better. When it comes to buying smartphones online, available data shows, shoppers don't worry too much about the price. A Rs 15,000-plus handset can easily fly off the shelf if the consumer thinks it is worth every buck on its price tag. Buyers scouting for deals on electronic products that are on the expensive side mostly come from Tier-I and-II cities. Tier-III consumers are anyway off the radar for most smartphone companies. "In the last five months we have seen demand coming from places like Satara (Maharashtra), Silchar (Assam) and Adilabad (Telangana)," says Boni.
While buying electronic products online, the biggest concern for a shopper is to get genuine products without any damage. Here the credentials of the e-commerce company plays a key role and can sway consumer decision in a big way. Michael Adnani, vice-president, retail and head, strategic brand alliances at Flipkart, says going exclusively online is mostly the choice of companies that accept e-tailing as the future of retail. "The leadership of a company should have the guts to accept this change," he says.
Mind you, mobile companies are not the only ones gravitating towards online marketplaces. As part of its strategic partnership with Disney, Philips Lighting has also decided that its 'Imaginative Lighting Range' for kids (aged between three to seven years) is best sold on Amazon. Priced between Rs 800 and Rs 5,000, these products are targeting affluent young parents who frequently go online to scout for quality products for their kids. Says Rahul Taneja, senior director, business head, consumer luminaries, Philips India, "This partnership with Amazon is not meant for cutting corners by not selling through physical stores. We believe a strong e-commerce platform can ensure the desired reach for such products."
Philips Lighting already sells some of its products on e-commerce platforms like Flipkart and Snapdeal. Also, its market research shows that kids-only brands do not enjoy great reach in this country. In fact, UK-based retailer Mothercare and Mahindra Retail's Mom & Me are the only two brands with a wide presence and therefore high recall. Given this scenario and given the fact that a Disney-branded lighting range, in all probability, will appeal to a customer who is already purchasing a lot of stuff online, it was not difficult for Philips to figure which basket to put its eggs in.
Going forward, the company says, it will make the 'Imaginative Lighting Range' available in brick-and-mortar stores as well. Says Taneja, "In the decorative lighting category, the advice of the store staff can help customers make the right choice. The advice is customised based on the requirements of the customer. I don't think such support can be provided as effectively online."
So after pricing its second-innings-opener Moto G's 8GB variant at Rs 12,499 and the 16GB at Rs 13,999, the company initiated talks with Flipkart to sell them exclusively through its online marketplace. That was certainly a bold step for a company that largely sold its mobile handsets through retail stores globally. Had it failed, everyone would have written off Motorola as being foolhardy. But to its amazement, Flipkart went out of stock within 15 minutes of opening 16GB Moto G orders for the first time and then in one hour the second time. The 8GB variant too sold amazingly well. Since February Motorola has sold over a million handsets of Moto G, Moto X and Moto E on Flipkart.
What are the lessons for brand marketers from Motorola's tryst with Flipkart?
More From This Section
Who wants to sell?
Let us understand the groundwork a company needs to do before bringing its offerings to consumers through physical stores. The first option for a company looking to sell handsets through brick-and-mortar stores is to build its own distribution network. The second option involves roping in an established distributor. For instance, if an OEM is importing handsets from China, it has to first look for a national distributor who will make a margin on the deal. Regional distributors who come at the second stage of this chain will also keep a margin before the product makes it to a retail store. A third slice of the margin goes to the retailer. The overall channel margin ranges from 6 to 15 per cent. So a company looking to test waters or trying to knock-off the mark-ups along the way could follow in the footsteps of a Motorola or a Xiaomi, and enter the market through the online route (China's Xiaomi has an exclusive partnership with Flipkart to sell its flagship Mi smartphones). This cuts out overheads such as rent, salary of store staff and relevant IT infrastructure.
Had Motorola chosen to build its distribution network from scratch through the traditional channel, the price of its handsets would have gone up by Rs 3,000-Rs 5,000 in the least, claim analysts. So for a relatively late entrant, the compulsions for going online are understandable. But does it make sense for companies with well-established offline distribution networks to push their offerings exclusively through an online platform? The answer is an overwhelming 'no'. Explains Karan Thakkar, senior analyst, research at IDC, "In doing so, the company will end up upsetting the trade. This strategy is not good in a country where retail is big and largely unorganised."
It is not as if Motorola dismissed the brick-and-mortar channel right at the start. Says Amit Boni, general manager and country head of sales, Motorola Mobility, "It was a combination of scale and speed that reaffirmed our faith in partnering with the country's biggest e-commerce company." He has a point: Flipkart, the largest e-commerce marketplace in India, has close to 22 million registered users.
In Boni's opinion, selling exclusively online has also helped Motorola control pricing (here Boni is referring to the fact that the same product is listed on different websites wearing different price tags) and pass on the amount saved along the value chain to its customers. "Through traditional retail, it may take close to 30 days for a new product to percolate down the distribution channel. Additionally, since mobile handsets are sold in various organised and unorganised single- and multi-brand stores, the consumer experience is seldom standardised," he adds.
Sounds good, but what about reach? India's internet penetration data doesn't really paint a rosy picture. As per TRAI data, India's internet subscriber base stood at 238.71 million as on December 31, 2013. Though the number of internet users is high, internet penetration in the country is still much lower than most countries across the globe. The latest report from research firm eMarketer points out that India has had the lowest internet penetration growth in Asia Pacific at 17.4 per cent so far this year. What does this mean for a company toying with the idea of selling exclusively online?
Obviously, it will lose out on millions of potential customers who are not necessarily online. Next, this way of selling has no room for the most decisive part of shopping - touch-and-feel. The likes of Flipkart, Snapdeal and eBay may disagree with that contention because in last three years e-commerce has prised open two of the most touch-and-feel categories - apparel and furniture. They have an endorser in Motorola's Boni who says, "Our research shows touch-and-feel is overrated. Even if we consider organised retail, only a couple of stores allow consumers to try their hands on a real handset. Usually one gets to see a dummy phone." Agrees IDC's Thakkar, "Touch-and-feel is not the main criterion in decision-making in electronics anymore. Consumers are willing to spend online as long as the product is genuine and comes with manufacturer's warranty."
That said, Motorola itself might have underestimated the value of going online: it got the launch demand forecast wrong twice - first at the time of the launch of Moto G, and then again during the launch of Moto E in May 2014. Boni says the company managed to address only 40 per cent of the overall demand in the first two days of the Moto E launch. Given its experience, Motorola says, it intends to keep half a million units in stock for day one of the next launch. Indeed when Motorola Indonesia was working on the launch of Moto G in that country, it fell back on the experience in India to project sales and ensure there was no stock-out. Now the company is working on extracting valuable demographic data from the sales data on Flipkart. Motorola's association with the e-commerce company has also helped it generate user content relating to its new phones. At this point, there are more than 2.5 lakh reviews of various Motorola handsets on Flipkart.
Who wants to buy?
Post the successful run of Motorola and Xiaomi on Flipkart, many more companies are looking at this platform seriously and trying to slice and dice available data to understand the consumer better. When it comes to buying smartphones online, available data shows, shoppers don't worry too much about the price. A Rs 15,000-plus handset can easily fly off the shelf if the consumer thinks it is worth every buck on its price tag. Buyers scouting for deals on electronic products that are on the expensive side mostly come from Tier-I and-II cities. Tier-III consumers are anyway off the radar for most smartphone companies. "In the last five months we have seen demand coming from places like Satara (Maharashtra), Silchar (Assam) and Adilabad (Telangana)," says Boni.
While buying electronic products online, the biggest concern for a shopper is to get genuine products without any damage. Here the credentials of the e-commerce company plays a key role and can sway consumer decision in a big way. Michael Adnani, vice-president, retail and head, strategic brand alliances at Flipkart, says going exclusively online is mostly the choice of companies that accept e-tailing as the future of retail. "The leadership of a company should have the guts to accept this change," he says.
Mind you, mobile companies are not the only ones gravitating towards online marketplaces. As part of its strategic partnership with Disney, Philips Lighting has also decided that its 'Imaginative Lighting Range' for kids (aged between three to seven years) is best sold on Amazon. Priced between Rs 800 and Rs 5,000, these products are targeting affluent young parents who frequently go online to scout for quality products for their kids. Says Rahul Taneja, senior director, business head, consumer luminaries, Philips India, "This partnership with Amazon is not meant for cutting corners by not selling through physical stores. We believe a strong e-commerce platform can ensure the desired reach for such products."
Philips Lighting already sells some of its products on e-commerce platforms like Flipkart and Snapdeal. Also, its market research shows that kids-only brands do not enjoy great reach in this country. In fact, UK-based retailer Mothercare and Mahindra Retail's Mom & Me are the only two brands with a wide presence and therefore high recall. Given this scenario and given the fact that a Disney-branded lighting range, in all probability, will appeal to a customer who is already purchasing a lot of stuff online, it was not difficult for Philips to figure which basket to put its eggs in.
Going forward, the company says, it will make the 'Imaginative Lighting Range' available in brick-and-mortar stores as well. Says Taneja, "In the decorative lighting category, the advice of the store staff can help customers make the right choice. The advice is customised based on the requirements of the customer. I don't think such support can be provided as effectively online."