 "Harminder Sahni")
Micromax, the second largest smartphone player in the county, launched its new smartphone brand Yu in December. The smartphone will be sold exclusively online.
The brand is owned by Yu Televentures, a subsidiary of Micromax Informatics. The long-term plan is to scale up services (like health, education and entertainment) on Yu's Cyanogen OS. While the entry-level, mid-range and high-end phones of Micromax are rarely acknowledged for their technological superiority, floating a new venture could be aimed to position the brand on a stronger technology platform. Will the gambit pay off or will it end up cannibalising Micromax?
In my opinion, this move by Micromax has been prompted by the sudden emergence of online as a major contributor to mobile handset sales, especially in the smartphone category, which has emerged as a popular one on e-commerce marketplaces, including Flipkart, Snapdeal and Amazon. For consumers, this has been an unexpected boon. Not only is it more convenient to shop online, the prices being offered online are unbeatable, too. The reason why online retailers are selling at a cheaper price is not because they are necessarily able to procure cheaper, but they are also sacrificing their margins and subsidising the purchase for the sake of consumer acquisition. Naturally, brick and mortar retailers cannot compete on price with such tactics and so, have been up in arms, threatening to boycott many brands that appear to overtly support the online marketplace.
At the moment, brick and mortar retail continues to contribute to a majority of smartphone handset sales, and companies cannot afford to alienate this channel. On the other hand, the popularity of the Beijing-based Xiaomi, currently the third ranked smartphone brand in the world, has demonstrated the potential of using e-commerce exclusively, backed by innovative cost efficiencies in their business model, including eschewing marketing spends in above-the-line advertising in traditional media.
For Micromax, launching a new brand exclusively for the online channel is a case of having one's cake and eating it too. One brand keeps the traditional retailers happy and the other gains market share in online retail and takes on brands such as Xiaomi. While the company may be addressing similar consumer demographics with both brands, they are hoping to address different segments based on buying behaviour - both, online and offline - so as to minimise cannibalisation. Besides, there is currently a huge untapped potential in terms of smartphone penetration, and, therefore, a flanker brand strategy, as in the case of both Lava's Xolo and Yu Yureka, will only help to accelerate the growth of the overall market. It will be interesting to see what Micromax does in terms of marketing to sharply differentiate Yu Yureka from Canvas.
This also appears to be a move by Micromax to get future ready to take on the emerging digital paradigms like the Internet of Things, in which mobile will be playing a central role. This may perhaps be easier to do with an altogether new brand than taking an existing brand with a six-year-old history and one that started by selling cheap feature phones. It is to Micromax's credit that it has marketed its brand aggressively to emerge as a formidable player in India, and it would be unwise to jeopardise the equity that the brand has built over the last few years, by trying to reposition itself.
The best way to build a new brand like Yu would be to set up the new brand as a new strategic business unit, with a completely separate ethos from the mother brand. The advantage of doing this would be the ability to create a new culture, new relationships and an altogether new way of thinking, necessary for the success of the new brand. I do not see any obvious disadvantages, except of course the additional resources needed to build a new brand from scratch.
Samit Sinha
Founder, Alchemist Brand Consulting
Founder, Alchemist Brand Consulting
"No matter what industry you work in, your target audience is probably channel-agnostic. This means, they don't put their faith in any single channel - online, offline, mobile, social. Instead, they put their faith in human interactions that are relevant, accessible when they want information, and positive."
These are the words of seasoned research analyst Ian Michiels. In the current scenario, the top priority of all leading handset players is to reach its customers with the least number of intermediaries and lesser margin loss. Selling mobile handsets exclusively online, a trend started by Xiaomi, was partially copied by many players in India last year, including Motorola, Micromax, Lava (with Xolo), among others. Let us begin by listing the advantages of this 'online only' strategy. First, since there are no layers of distributors and retailers, the working capital cycle of a company is shortened. Since top-line growth is a major concern for all leading e-commerce companies as of now, some of them are willing to enter into agreements with OEMs at lowest possible margins, some even at zero margins. Not to mention, this is not a sustainable strategy. From a brand perspective, selling exclusively online is the easiest way to create buzz. Do you remember how many times you read about 'stockouts' during handset flash sales online last year?
The disadvantage of selling exclusively online for a player well-entrenched in brick and mortar stores is channel conflict. Even if Yu Yureka is able to do good sales online in the next few weeks, other channel partners (physical stores) may hold the company responsible for holding back a star product. Today not being channel-agnostic is the worst idea for any player in the business.
Coming to what Micromax is doing by launching Yu as the first brand from its subsidiary, it is very difficult to build a new brand from scratch. Let me share the example of another Indian company, Rupa. Over the years, the innerwear manufacturer has tried to build many sub-brands. But how many of them have managed to gain sizable market share? Take the case of its sub-brand Euro which targets men looking for both, fashionable and comfortable innerwear. While the company's intent was right, this sub-brand is yet to make it to the consideration set of the aforementioned target audience. This has happened to many other companies globally. The mother brand always enjoys highest recall because a company invests all its ideas and resources into building it. In cases similar to Yu, the going will surely get difficult because product is just a part of the brand and there are other aspects like positioning, brand imagery and ethos.
Having said that, different brands address different consumer needs to serve various purposes for a company. If Micromax is able to create a market for Yu, it will be one-of-a-kind success story of an Indian MNC.
Harminder Sahni
Founder & MD, Wazir Advisors
Founder & MD, Wazir Advisors
