Retail Review

Consulting
Magazine
Retail Review
Volume 01
Foreword
Welcome to the first edition of Retail Review!
The retail world is changing at a fast pace globally, in terms of consumer behavior as well as
business innovation, and the emergence of new technologies is accelerating the trend. It has
become imperative for businesses to not only match this pace to sustain themselves today,
but also exceed this pace in order to excel more than others. Our group aims to help retailers
achieve this objective, by bringing together snippets of knowledge, experience and best
practices from the global retail world and highlight initiatives that can help them sustain
their success.
In this inaugural edition of Retail Review, we have covered a spectrum of ideas that can make
a positive impact for your retail business. The ideas discussed in this edition include
redefining the role of the buying organization and 'selling what your customers want',
identifying the key imperatives for rapid retail expansion and 'making a quantum leap',
shaping the point of sale experience by 'wearing your customers' shoes', examining ways to
retain in-store customers from increasing online competition and 'combating showrooming',
and strengthening your e-tailing business through 'innovative collaborations'.
We are positive that these insights will help you revisit your business practices with a
renewed perspective and help you define the roadmap for the initiatives you wish to take in
the near future. We look forward to hearing from you, exchanging our experiences and
keeping in touch, so do write in to us.
Happy retailing!
Anil Rajpal
Contents
1 Retail Bytes
1.1
Selling What Your Customer wants
1.2
How to Influence Store Customers and Win their Business Inside the Store
2 View Point
4
4
10
19
2.1
Making the Quantum Leap
19
2.2
Here’s what it’s like to be in your customer’s shoes!
27
3 Case in Point
32
3.1
Forays into Pharmaceutical Retailing
32
3.2
Tata Starbucks India Launch – Business Process Management and
Core System Selection
36
4 In Focus
4.1
United we stand, divided we fall!
40
40
1. Retail Bytes
1.1. Selling What Your Customer wants
Anupam Raj Gautam
Executive Summary
Retail stores across the globe provide discounts and markdowns on products they want to discontinue or on
products that no longer have a shelf life. The most common reason for this is wrong buying decisions. The discounts
erode the wafer-thin margins of the retailers. Often the retailer has to sell the merchandise at discounted rates or
even below the buying price, as holding on to the stocks impacts their working capital adversely. In this article, we
suggest redefining the roles at the buying organization. It is necessary to clearly define the role of a Merchandiser,
who represents customer trends and store demand as opposed to a Buyer who represents the retailer to the
manufacturer or to the external vendor. This article suggests ways for the different functions of a retail organization
to collaborate with the objective of creating a customer-centric store model that does not need to resort to
liquidation sales and markdown discounts.
I recently visited a large department store and, as usual, walked straight into the segregated area where the best
deals and discounted products are displayed. I was happy to see that the merchandise had changed and the area
was filled with casual polka-dotted shirts in different sizes and colors with large posters announcing great discounts
and liquidation sales.
There are several reasons for these markdowns and liquidation sales, but the wrong buying decision happens to be
the most common one. Retailers, who have tight working capital requirements, have no option but to sell the
merchandise at great discounts and at times even below the buying price. This is not the case with food and
grocery retailers, because the product variations there are limited by brands and sizes. Shoppers are, therefore,
forced to buy according to their shopping lists. In cases where the merchandise category is not standardized and
where external factors, such as trends and technology, play a key role in driving consumer buying behavior, more
complications arise. The polka-dotted shirt example cited above is one of the several examples of unsuccessful
buying strategy, where the retailer was not in a position to understand the customer preferences or estimate the
demand accurately. Markdowns and discounts happen to be an integral part of retailing and while these cannot be
eliminated, they can certainly be reduced to a great extent.
The story behind the unsold polka-dotted shirt
Why is it that the polka-dotted shirt had few takers on the shop floor? To get an answer to this question we need to
understand the organization structure and the entire supply chain, right from getting the polka-dotted shirt from
the manufacturer to finally placing it on the shop shelf.
4
A typical retail organization revolves around four mega processes of Plan, Buy, Move and Sell. The Buy mega
process consists primarily of buying and merchandising and involves assortment planning, inventory management,
pricing, promotions and vendor management. A typical buying organization has a Head Buyer with several
category-level Buyers reporting to him. Category Buyers are often supported by Assistant Buyers and Merchandise
Planners who are involved in day-to-day operations like ordering, replenishment, allocation and transfers. In some
cases, the Buyer is also supported by a Business Analyst who looks into the quantitative areas with respect to
buying such as Gross Margin Return of Investment Inventory (GMROI), Gross Margin Return on Footage (GMROF),
Margin Mix, Rupee Gross Margin (RGM) Mix and Vendor Contribution. This facilitates important decisions on
assortment planning, space mix and range introduction or deletion.
Head Buying
Buyer A
Asst. Buyer
Buyer B
Merchandise
Planner
Manufacturer / Vendor
Asst. Buyer
Merchandise
Planner
Manufacturer / Vendor
Figure 1 - The Structure of a Typical Retail Buying Organization
Figure 1 shows a typical organization structure in retail buying companies and there are well-defined roles and
responsibilities with Key Result Areas (KRAs) for every individual.
For example, a Head Buyer is responsible for a Strategic Business Unit (SBU) and is supported by Buyers who are
responsible for the respective categories and sub categories within the SBU. The Head Buyer allocates space to
Buyers with a target of achieving certain revenue per square foot and margin per square foot. The Buyer plays with
space within his categories and the Head Buyer within the SBU to achieve the desired target figure. The Buyer is
responsible for the complete product strategy including pricing, quantity, placement, and promotions.
This structure is category-driven and therefore leaves little room for showcasing product experiences and does not
allow for cross-merchandising. There are inherent challenges in this organization structure which eventually lead to
liquidation sales. Incoherent planning, lack of intra-SBU collaboration and lackadaisical store execution are some of
the drawbacks which are associated with this structure.
5
The above organization structure is based on the assumption that the Buyer can make the most accurate buying
decisions based on his past experience and knowledge of the market, while taking into account consumer trends
and buying preferences. In reality, however, this is not always the case.
Here are some key pointers for consideration:
n
Cognitive instincts and learning are useful in matured markets where product categories are represented by
standard products. In a developing economy like India, with very few reference points for organized retailing,
the past may not always be the best representative for the future. The dynamic nature of categories like fashion,
lifestyle and electronics make historical data irrelevant at times.
n
Often, past experience is a hindrance to the Buyer, who is unable to identify and adopt new trends and
consumer insights.
n
The buying decisions and introduction of new products are primarily driven by manufacturers rather than being
based on customer trends or store feedback.
n
The buying decisions are often clouded by the manufacturer's tactics to push brands on the retailer's floor by
offering margin and quantity-based discounts.
The buying team of a large retailer manages multiple stores across different formats. Therefore, the team is not in a
position to capture and reflect trends and preferences across different store-cluster types leading to a cookie cutter
approach or a very simplistic approach to assortment planning. The results are not always encouraging and can
lead to unsold inventory and eventually a liquidation sale. The blending of the art and science aspects of buying
and merchandising is slowly fading. The buying and merchandising functions are becoming more transactional in
nature, with constant efforts to increase sales and rupee margins for the category at the cost of various factors such
as assortment differentiation, customer expectations, and feedback from the stores.
Creating a Customer and Store Driven Assortment
Let us go back to the polka-dotted shirt story. The buying process there was fairly complex and a wrong buying
decision turned out to be expensive for the organization. The complexity arises because the manufacturer has
several prints in different sizes and colors and the Buyer has to decide the price and quantity. The manufacturer has
a tiered margin structure, which increases with the lot size in order to make it lucrative. The Buyer, in order to
increase the rupee gross margin and also overall gross margin percentage for his category, takes a calculated risk
and orders the merchandise. When the merchandise arrives at the store, it does not generate a great response and
finally the Buyer is left with no other option but to mark down the price in order to sell the product. This is a
common occurrence in the retail business and the challenge is to minimize such instances.
6
In a typical retailing organization, there is very little difference between the Buyer and the Merchandiser and often,
the roles overlap and get duplicated. The difference arises merely in role segregation based on hierarchy:
n
Who is responsible for pricing and margin negotiation with the vendor?
n
Who is responsible for assortment and new product introduction?
n
Who maintains the master data and merchandising and planogram guidelines?
n
Who decides on promotions and markdowns?
The Buyer is responsible for strategic decisions and the Assistant Buyers and Merchandisers are involved in tactical
and day-to-day operations. Information flows are nearly always from the top –manufacturer to the Buyer and then
to the store. The entire process does not take into account the qualitative elements of buying. The buying team is
not in a position to capture customer trends or reflect store requests, as there are no defined structures and
processes to support the same. Buying therefore becomes mechanized where Stock Keeping Units (SKUs) are
simply purchased from the manufacturer based on pre-agreed terms or the new product lines showcased by the
manufacturer.
The buying process needs to be more inclusive and collaborative, in order to avoid situations like the one with
polka-dotted shirts. One way of achieving this is by making a clear bifurcation within the buying team between the
Buyer and the Merchandiser (Refer to Figure 2), with the merchandising team looking into customer trends, inputs
and suggestions from store managers, the environment, and other factors, leading to the creation of a detailed
merchandising plan. On the other hand, the Buyer becomes the retailer's interface with manufacturer and
suppliers, and ensures that the procurement is done as per the merchandising plan created by the merchandisers.
Head-Buying &
Merchandising
Buyer A
Merchandiser A
Asst.
Merchandiser
Merchandiser
Planner
Customer & Store
Asst.
Buyer
Buying
Executive
Manufacturer & Vendor
Figure 2 - Segregation of Buying and Merchandising
7
Let us take a look at the roles of the Merchandiser and the Buyer after the bifurcation in figure 3.
Customer & Store
Merchandiser
n Represents customers and
stores
n Identifies trends
n Collaborates and estimates
demands
n PLC Management i.e.
Incubates, nurtures and
finally kill categories
n Decides what must sell,
when where and at what
price?
n Provides assortment and
margin expectation to the
buyer
n Responsible for GMROI &
GMROF
Manufacturer/ Vendor
Merchandising
Plan
Buying
Plan
Buyer
n Buys what merchandiser wants
(Customer & Store)
n Share assortment options as
per merchandiser's plan
n Meet SLA and Delivery
schedules
n Negotiates Credit period, Gross
Margin, Price protection,
Returns & Exchanges etc.
n Acts as a Sourcing expert
n Responsible to meet/ exceed
the assortment and margin
expectation of buyer
n Responsible for Vendor
development, shipping and
stock scheduling
Figure 3 - Customers and Store Driven Assortment
Role of Merchandiser
n
Managing and driving customer experience through product strategy as well as space planning at micro and
macro levels
n
Managing product lifecycle including stages such as Introduction, Growth, Maturity and Exit Pricing
n
Clustering of stores within a city or geography-based catchment type such as income levels, profile of
townships, lifestyle, ethnicity and usage habits in order to drive a particular product experience
n
Creating a merchandising matrix for particular categories which reflects the consumer buying criteria
n
Developing a detailed merchandising plan for the Buyer to facilitate buying decisions
The merchandising plan should contain the following:
n
Product features, desired brands, and price range at merchandise classification level
n
Formats / store clusters where the product will be merchandised
n
Number of SKUs desired per cluster type
n
Desired sales and rupee gross margin
n
Monthly and weekly sales plans
8
Role of the Buyer
n
Being the single point of contact for manufacturers for an organized retailer
n
Providing inputs to the organization with respect to vendor developments, product road maps, category
replacement cycles, new technologies, among others
n
Establishing an engagement matrix with vendors for different product categories to evolve strategic and tactical
relationships depending on the importance of the vendor in line with the business across formats
n
Procuring as per the merchandising plan and thus creating a very customer-driven assortment which is owned
by store operations and is sought by customers
n
Ensuring that the criteria set by the merchandiser with respect to product feature, brand, price and margin are
met and exceeded
n
Planning delivery and shipment schedules
Conclusion
It would be a utopian dream to completely eliminate markdowns, end-of-line and liquidation sales from retail, but
redefining the roles and KRAs of buying and merchandising departments can definitely help reduce them.
The benefits that can be accrued by adopting this model are manifold. Merchandising can become more focused
and customer-centric. The inclusive approach to drawing up the merchandising plan can make store associates take
more responsibility for the sales of the merchandise. The customer trends and the valuable inputs from the shop
floor can drive the merchandising and assortment decisions rather than the product promotions recommended by
the manufacturers. Collectively, these benefits can bring greater transparency and objectivity to buying decisions,
with the merchandising plan actually driving the buying decisions.
9
1.2 How to Influence Store Customers and Win their Business Inside the Store
Guidelines for retail stores to combat the phenomenon of showrooming
- Kedar Mehta
What is showrooming?
Showrooming is a phenomenon experienced by almost every offline retailer today. A customer visits a brick-andmortar store, experiences and evaluates a product in the store, compares the store price and the online price of
the product on a mobile device, invariably finds online price (inclusive of free shipping) cheaper, and proceeds to
purchase the product online. Welcome to showrooming!
A regular retail store or an offline retailer today is often just an 'exhibition hall' for the customer. Retailers are
perhaps now realizing that they are bearing the cost of product selling though the actual sale and the profits are
going to online vendors. This does not augur well for the offline retailer as the trend of incurring costs without
appropriate sales figures can make their business models unviable. This article assesses the threats and provides a
few tips to help offline retailers address these challenges effectively.
Insight into showrooming – initiatives at Target
It was in early 2012 that the showrooming phenomenon gained prominence, thanks largely to the evolution of
smartphones.
Target1, the second largest retailer in the United States of America (USA), wrote to its partner suppliers, soliciting
their support to address this trend. They were asked to create special products that differentiated them from
Target's competitors, and to help Target match the pricing provided by its online rivals. Target's CEO publicly
declared his determination to counter the online retailers' strategy of simply undercutting offline prices without
investing in their brand, with his comments being widely reported in the media.
Considering that Target is well known for its innovation and spirit, these concerns triggered some soul-searching
among the other store retailers. For instance, JC Penney was reported to be looking at similar initiatives, along with
a complete restructuring of its promotional 'Hi-Low Pricing Strategy' using 'fair and square' pricing. The strategy
now has only three components: everyday low prices, month-long value prices and best prices.
Today, retailers have realized that showrooming is part of emerging customer behavior and there is no looking
back. Customers love to visit brick-and-mortar stores over the weekend and have the familiar shopping experience,
but now they are looking for 'something more' like merchandise range, price, convenience, deals, choice. This trend
can continue to give business to retailers on a sustained basis.
To determine what those options could be, let us first look a little deeper into what is happening in the marketplace
and how showrooming is coming to life.
10
On Best Buy and Amazon 2,3,4
The world's largest electronics retailer, Best Buy, was expected to have a golden run for many years, especially after
its closest competitors closed down – CompUSA in 2007 and Circuit City in 2009. In 2011-2012, Best Buy's
comparable store-sales were consistently declining. It announced closure of many of its brick-and-mortar stores,
reduced discounts and announced cuts amounting to millions of dollars. One of the key contributors to its tough
times, widely acknowledged in the media, was Amazon's Price Check Application which debuted in 2010 for iPhone
and 2011 for Android mobile phones. This app allowed a customer to scan a particular product's barcode at store
and compare it with the best price on the web – usually on Amazon.com or elsewhere.
Consumers started visiting Best Buy's retail stores for the touch-and-feel of the products they intended to buy,
sought clarifications on the products from the sales staff and finally bought the product online, often from
Amazon.com. Hence, while Best Buy bore the cost of merchandising, sales staff training and manpower, the
business went to Amazon.com, the company which provided better pricing, free shipping and more convenience
to the customer.
Online Retailers vis-à-vis Traditional Bookstores and Electronics Stores
Indian retailers too face the same predicament. There are over 800 million mobile phone users already accessing
the internet through their mobile phones, and this number is growing. This has resulted in the advent of players like
Flipkart, homeshop18.com and futurebazaar.com who are competition for book stores like Landmark and
Crossword and electronics showrooms like EZone and Next.
We often see customers, friends and colleagues going to regular retail stores to check out a product and then going
online to purchase the same as it is cheaper. Online stores like Flipkart.com have ambitions of becoming the largest
retailer in India and cover almost all products barring groceries and automobiles. The regular organized retail
majors like the Tata group, RPG Spencer's, Shoppers Stop, Future Group, Reliance Retail and Aditya Birla Retail will
need to address the competition from online retailers as well as the emerging trend of showrooming.
Triggers for Showrooming
Let us now look at some key triggers for showrooming amongst customers today.
Online Marketplace Maturity: Customers are now internet savvy and research the products they want to buy online
before making the purchase. In more mature markets like the US, it is estimated that above 20% of offline retail
store sales are influenced by online research. In categories like books and electronics this figure is expected to be
much higher, maybe over 50%. Even in categories like home improvement, apparel and pharmacy products, the
percentages are in double digits. This indicates that consumers are getting used to going online to research
products and if online stores provide benefits such as merchandise range, better pricing, convenience and good
deals – the customer no longer needs to visit the offline retail store to complete the purchase. This is still a nascent
trend in the Indian context today, but is expected to gain ground in the near future.
[1] RIS News; Target Seeks Allies in Battle Against 'Showrooming'; Adam Blair; (2012); Accessed – August 9, 2013; http://risnews.edgl.com/retail-trends/Target-Seeks-Allies-inBattle-Against--Showrooming-78294
[2] Businessweek; Best Buy's Amazonian Nightmare; Roben Farzad & Kenton Powell; (2012) Accessed – August 9, 2013; http://www.businessweek.com/articles/2012-0329/best-buys-amazonian-nightmare
[3] RIS News; Stop Amazon from Hijacking your Customers; Joe Skorupa; (2012) Accessed – August 9, 2013; http://risnews.edgl.com/retail-insight-blog/Stop-Amazon-fromHijacking-Your-Customers78128
[4] Internet Retailer News; Paul Demery; Best Buy attacks Showrooming; (2012) Accessed – August 9, 2013; http://www.internetretailer.com/2012/06/22/best-buy-attacksshowrooming
11
Offline Retailer's Unimpressive Online Presence: Let's see if you can name one offline retail store that has an
impressive online store – with the exception of perhaps tesco.com and apple.com, there are hardly any offline
retailers with a dominant online presence. Offline retail stores are missing a trick when they do not focus on an
online store presence. It is not just having an online outlet, but also focusing on providing the appropriate
merchandising, pricing and convenience factors that can push their cross channel synergies. Unlike their western
counterparts who have made some progress in the online retail space to combat the competition from online
stores, Indian offline retail stores are yet to capitalize on the online store capabilities. If retailers with an additional
online store have very little synergy between the offline and online stores, they can become two different entities
and fail to provide the expected benefit.
Diminishing Offline Dependency for Sales Process: A side-effect of the trend is a split in the customer's buying
cycle. The original buying cycle would comprise these stages – explore, experience, engage, evaluate, buy and
collect. Except for the 'experience' stage of the buying cycle, all the other stages can take place online. For instance,
a customer researches a Samsung S3 mobile phone on Flipkart.com, experiences the phone physically at The
Mobile Store, then goes to purchase it again on Flipkart.com. Now, why did the customer not research the product
on The Mobile Store's website right at the start? The store experience offered at The Mobile Store is not replicated
on its website and the Flipkart.com website experience is not available on The Mobile Store website. The sales
process is now no longer a single-channel activity and as a result, the customer moves to different channels at each
stage of the buying cycle – mainly the channel which provides the most comfort at that stage of the cycle.
Infinite Merchandise Range: While a physical store can hold only about 10,000 Stock Keeping Units (SKUs), an
online store can have a large catalog of products by a retailer. Earlier, organized retailers outdid unorganized
retailers on the strength of the range of merchandise. They had bigger pockets and bigger stores that could display
more merchandise and offer customers more choice. This led to higher sales. The strength of organized retailers has
become a weakness, because of their sheer inability to think beyond the physical store space. Nothing really stops
an offline retail store from having an in-store kiosk or sales catalog tablet displaying a larger list of products that are
not necessarily stocked in the offline retail store but can still be made available to the customer. For example, Argos
has built a complete business solely on the basis of a catalog. Unfortunately, offline retail stores have not filled this
gap and have allowed their captive customers to shop elsewhere.
Cheaper Pricing: Currently, online retail pricing is invariably cheaper than the offline retail stores. This is very
attractive for the customer. Online retailers have the advantage of lower costs as they do not have to pay for
expensive real estate, store setup costs, merchandising and manpower costs – to name a few of the costs that go
into setting up an offline retail store. This obviously results in the online store having the capability to price their
products more attractively to woo the customer. It is observed that shoppers in the western markets are
disillusioned by the price difference in the online and the offline stores of the same retailer. This leads to loss of the
customer's trust and eventually loss of business. On the other hand, online retailers usually do not face this issue.
12
Key Strengths of Offline Retailers
After discussing customer behavior triggers that enable showrooming, let us now take a look at the inherent
strengths of offline retailers that can help address these challenges and sustain them in the new era:
n
Customer
In Store
n
n
Personal
Connect
n
n
Price
Optimization
n
n
Distribution
n
n
Experience
and
Services
n
Visiting High Street stores and malls is part of the mature shopping experience that
consumers have developed over the years. This brand familiarity has its advantages in the
form of customer trust. The essence of retail is to convert this footfall into sales effectively,
with innovation and good service.
Nordstrom's Customer Service Proposition has shown how it can be done and sustained
successfully, as customers value what the store offers them in-store (and outside of it).
There is not better feeling on a shopping trip than to encounter a salesperson who known
you by face and knows your preferences even before you spell they out. A warm 'hello' of
familiarity and personalized service inside a store is an experience that is hard to replicate on
any online shopping channel.
Starbucks' barista-customer relationship have shown how this is done and the strong impact
it has on customer loyalty.
Brick-and-mortar retailers have the historic ability to optimize pricing of individual product
items for its customers, while maintaining a profitable balance between its assortment of
low-margin and high-margin items.
Tesco's good-better-best' priced assortment for different customers and dynamic pricing on
perishable items, depending on the time-of-day, are best practices that exemplify this
strength that retailers can leverage in any operating model.
Every leading retailer in the western markets (and some leaders in the Indian market as well)
have the presence and ability to service many stores through robust distribution and
replenishment systems which is considered the primary USP of the online retailers. Retailers
only need to extend this capability to an offline-online mix to make it relevant for today's
retail consumer.
Macy's⁵, for instance, has begun to use 292 backrooms of its 800 stores as shipping centers for
its online sales distribution, thereby taking an important decision of having distribution
centers near its population centres.
A Customer's need to see, touch, feel experience a product they want to purchase and take
home 'right now' is unmatched by any online proposition. Additionally, even in the
'showrooming-prone' categories like electronics, there are post-sale elements like demos,
installation, warranty management, which can be offered only by offline stores. This is an
advantage they must focus on.
Best Buy's famed Geek Squad is an advantage that online stores cannot offer yet.
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Offline Retailer Initiatives to Combat Showrooming
Apart from an online channel, there are various initiatives that an offline retailer can adopt to combat showrooming
effectively.
Cross-channel Offers
Partnership with
Pure Online Players
CRM-led Programs
Store Exclusives
Price Match
Re-visit Store Space
Combating Showrooming
Figure 1 – Initiatives to combat showrooming
Price Match, with Store Empowerment
The most important trigger that promotes showrooming behaviour inside a store today is cheaper pricing
provided by online retailers. One measure to combat this is to develop a 'Store Price Match' proposition whereby
store staff is empowered to match the competitive online pricing – to the extent of the price difference.
Price match can be controlled by pre-fixing a certain percentage per month at a store-level. This can be offered
under price match discounts and should be offered only against three or four eminent online competitors
predefined by the senior management. If absolute price match discounts cannot be offered, store gift vouchers
to the extent of the price difference can be evaluated. This effectively nullifies pricing as a lone variable of sales
conversion and combats showrooming right away.
Leading electronics retail chains in the Indian retail space like Vijay Sales, Croma and Reliance Digital have taken
some initiatives towards this effect already. In the US, Best Buy has even begun offering free shipping of its store
(and online orders) orders thus addressing a major Amazon.com variable that contributes towards
showrooming.
Customer Relationship Management (CRM)-led Customer Programs at Stores
In an increasingly online world, physical stores need to highlight their importance as 'Experience Centres' by
offering their customers more than just a place to shop. Grocery retailers can launch product tasting programs in
association with leading brands. Electronics retailers can hold special sports viewing events and gaming
contests using their store as a backdrop or hold microwave cooking classes for its customers. Book retailers can
hold story-reading classes or treasure hunts for kids on weekends. These initiatives can increase footfalls and
help retailers understand consumer preferences. The essence of such CRM-led customer programs at a store is
to build a relationship with a customer and add more value beyond the shopping basket.
14
A good example is leading Indian hypermarket, Hypercity, which invited its key customers to a particular store's
first anniversary and handed out movie tickets of the latest release at a local multiplex. The customers loved it
and increased their patronage with incremental purchases at the store during their visits. Complete customer
delight is possible at stores and there are experiences that go beyond pricing alone.
Cross-channel Offers
Retailers can provide online customers with offline offers and/or provide offline customers with online offers.
This is an important psychological win over customers who can then begin to consider the brand an
organization they can shop with – irrespective of the channel they use to purchase. It goes a long way in
diffusing the mental divide between the customer's offline and online preferences and the retailer can occupy
the position of being a preferred shopping destination.
Shoppers Stop and Celio India have taken initial steps in the Indian market, by offering its online customers
'Incentive Coupons' for visiting their physical stores and making their purchases in-store – both with successful
outcomes. In a reverse trend, Starbucks US randomly offers in-store customers coupons for their online
purchases.
As more cross-channel offers emerge by the same retailer, it is likely to stem the flow of customers between
different retailers in their offline and online worlds and the retail brand can become sticky in the customer's
consideration set.
Partnership with pure Online Players
In India, freecharge.in offers retailer's coupons for mobile and Direct to Home (DTH) recharges through its
website portal. The featured retailers include Barista, McDonalds, Dominos Pizza, Landmark, Crossword, Fastrack,
and Monginis. Customers who get these coupons can visit a retailer's offline store to redeem their coupons,
which generates additional business for the store. In essence, they have captured an online customer's business
inside their own store, with the help of a complementing partner.
Also in India, the website fashionandyou.com provides a platform where leading fashion brands offer their
products and services to online customers. This helps them generate additional business, which they may not be
able to tap through their own stores today – online or offline.
An additional benefit that can occur from such alliances is that it can even help retailers liquidate their inventory
better through the online-offline mix than through offline alone and thereby improve their inventory
management as an organization.
Develop Offline Store 'Exclusives’
In a world when time is a premium and 'everything is available online', customers must have a reason to
continue visiting the offline store on a regular basis. A unique way to establish this is by having offline store
'exclusives' – products which are conceptualized and made available only at physical stores. This adds to the
customer intrigue and excitement about visiting the store every month and finding something interesting. Done
effectively, it becomes a huge differentiator and keeps the retail brand fresh. It also helps create customer need.
15
Made (a furniture retailer in UK) lets its customers vote online for which pieces of furniture it should
manufacture and those items are made available at its stores. This is a disruption of the classic top-down,
designer-to-consumer model, and the start of a genuinely new retail hierarchy. The Costco Membership
Program keeps customers up to date with the latest in their stores and customers keep coming back looking for
the latest products and deals.
Re-visit Physical Store Space
Retailers need to re-visit their existing physical store concepts which were built for holding huge assortments,
provide wide choice and enable easy customer access. Since no amount of assortment is now going to be
enough, all retailers should assess their assortment, determine approximately 80% SKUs which make the most
impact on a regular basis and keep them in store. They can shift all other products online, display them through
kiosks or make them available via mobile phones and tablets. This can lead to optimized store sizes which
impact the retailers' bottom-line immediately.
In a TCS-FICCI6 paper on Integrated Multichannel Retailing published in August 2012, we have shown how a
retail brand can improve its bottom-line significantly even if it just moves 5% of sales to online channels. These
efficiencies can be ploughed back to the offline initiatives mentioned earlier to reinforce the store and online
propositions.
Multiple examples of initiatives in this area are available in the western markets already. Macy's5 is using its store
back-offices as distribution centers for online orders. Best Buy is re-sizing its stores and equipping its store staff
with tablets for accessing its online store and helping customers research the entire products range. IKEA has
developed 'Experience Zones' inside its stores for providing a prospective home-technology experience to its
customers.
In addition to these perspectives, we listed out what retail industry experts had to say on the concept of
showrooming based on their experience.
Industry Speak
TCS Retail Consultant Abhishek Pangaria has recommended the option of 'showcasing' where a retailer can
showcase products online (where the buy option is also available) and allows customers to experience it in an
offline mode. Back-end operations can ensure that online favorites are ready for 'trial and purchase' when the
customer visits the store.
Rajiv Nair, CEO of Celio – the men's apparel retailer – reckons that the best options from the above would be CRMled customer programs at store and online-offline cross-channel offers. In fact, Celio has already tried a Facebookcoupon promotion – available to all customers who 'like' their brand – where they can print and redeem them for
discounts at their stores across India. This has been a very successful campaign for them.
Veneeth Purushotaman, Business Head (Technology and Supply Chain), Hypercity, estimates that the online price
will always be cheaper, but one can have in-store specific offers by providing freebies with the product and offers
[5] The Wall Street Journal; Macy's Regroups in Warehouses Wars; Dana Mattioli; 2012 Accessed – August 9, 2013;,
http://online.wsj.com/article/SB10001424052702303505504577404123150295102.html
[6] TCS-FICCI Paper: Driving Indian Consumption through Integrated Multichannel Retailing – 2012; Accessed – August 9,
16
on accessories to incentivize offline store sales. However, this may not be fool-proof as the competition can
replicate this online as well. He adds that if a retailer has an omni-channel presence, then he should look at crosschannel promotions for his online-customers and walk-in-customers. He also points out that price match is not the
right solution and store empowerment could be cumbersome at an operational level. He highlights that right-price
benchmarking should be pursued. Retailers who have loyalty programs can match the price with loyalty points
offers, which is a good approach as the customer and the retailer both benefit. He also mentioned that partnership
with pure online players is an interesting idea. He would look at it as a positive move if the retailer who does not
have an online presence actually puts up his inventory for sale to the online retailer and keeps his inventory ticking.
The selling price, discounts and similar variables may not be easy to manage, but this is an option worth trying in
order to sell the ageing inventory.
Based on his experience in the mature western retail markets, Vivek Mehta, Principal Consultant, TCS, agrees that
CRM-led programs at stores and developing offline store 'exclusives' would be the best option to combat
showrooming. He disagrees that price match with store empowerment is a credible option since it can lead to loss
of internal store controls and ad-hoc transactions by store managers. Additionally, he expresses a view that
showrooming is good for the customer and hence it should not be resisted by the retailer. The retailer should try to
retain the customer by providing multiple channel experience through its store or through an online presence. In
order to ensure customer loyalty, a specific range of products should be made available to the customer through
specific channels of the same retailer.
Conclusion
The phenomenon of showrooming is a customer behavior trend emerging from the advent of alternate online and
mobile channels alongside the traditional brick-and-mortar retail stores. The really efficient online retailers like
Amazon.com are attracting the customers to make their final purchases online, primarily on the proposition of
better pricing and customer convenience, even though customers may actually experience the product in some
offline retail stores and make their buying decision 'in-store'.
Whether this remains a consistent trend or a fad really depends on how the brick-and-mortar retailers cope with
new developments in customer demands and in the competitive landscape. Offline retailers have strengths that
can be leveraged to structure their online-offline proposition effectively and address showrooming effectively.
Apart from using their traditional strengths, they should undertake long-term strategic initiatives in the areas of instore offerings, personal connect, price optimization, distribution and experience management.
They should take immediate action at multiple levels to stop losing business to competitors and becoming boring
and irrelevant to their customers today.
The initiatives should be innovative and should help improve the stickiness of the customer and improve the brand
loyalty. Some retailers have achieved initial success with the initiatives adopted by them. A complete approach will
slowly emerge by working on this on a sustained basis, but as we know, well begun is half done!
17
Further Reading:
1. Business Standard; Flipkart aims for 10-fold growth in revenue in FY12; Nivedita Mookerji; 2012; Accessed Sept 2,
2013; http://www.business-standard.com/article/companies/flipkart-aims-for-10-fold-growth-in-revenue-infy12-111122700025_1.html
2. RIS News; How to Kill Showrooming; Gary Williams; 2012; Accessed – Sept 2, 2013;
http://risnews.edgl.com/retail-trends/How-to-Kill-Showrooming80597
3. Businessweek; The Future Retail Wasteland; Brad Stone; 2012; Accessed Sept 2, 2013;
http://www.businessweek.com/articles/2012-04-12/the-future-retail-wasteland
18
2. View Point
2.1Making the Quantum Leap
Key Imperatives in Rapid Retail Expansion
- Sanjeev Seshagiri Athreya
Executive Summary
Modern retail penetration in India is a low 5-6% compared to around 24% in China. Interestingly, China has made a
leap in the recent past with modern retail penetration exploding from around 2% in 2005 to 24% today. This
dramatic rise in retail penetration is not entirely due to a liberal Foreign Direct Investment (FDI) regime and capital
inflows. In fact, 17 out of the top 20 Chinese retailers are homegrown. Indian retailers need to take note.1,2
This article does not cover the supply-related issues of retail expansion such as funding or real estate infrastructure
development. Instead, it examines what it would take for Indian retailers to make this transition from within. There
are some factors that retailers ignore while creating or carrying out expansion plans. Some of these are all-round
preparedness, strong supply chain networks as well as the focus on knowledge management. The article identifies
the pitfalls that retailers may encounter if they are not sufficiently prepared and lists out the key imperatives for any
retailer embarking on an aggressive expansion drive in India.
Background
Relaxation of FDI norms in multi-brand retail in India can help speed up modern retail penetration. Irrespective of
this, domestic retailers need to expand aggressively. Since most enablers are in place or are coming together and
funding is not as much a stumbling block as before, what are the factors that hold back rapid expansion?
Retailers face multiple challenges in the process of growth – starting the first store, adding ten more stores and
then growing further to become a forty-store chain. However, making the transition to becoming a thousand-store
chain is not going to be the same story; this may not involve the same set of competencies. Retailers will be tested
on all fronts in this journey. Modern retail penetration in India is expected to reach around 20% by 2020 and
therefore retailers will have to make the leap soon.
Any large-scale expansion requires careful planning, adequate resources, effective project management, and above
all, the ability to execute efficiently. This raises the following questions:
n
Are Indian retailers ready for massive expansions and will these expansions be sustainable?
n
What are the challenges in expanding from a 100 store chain to a 1,000 store chain?
n
What are the key imperatives before undertaking any massive expansion?
Let us take a look at the various factors that influence these developments.
[7] Tata Consultancy Services Ltd. - India Boarding, March 2012, Accessed June 10, 2013; http://www.tcs.com/resources/white_papers/Pages/India-BoardingDestination-Indian-Retail-Market.aspx
[8] Journey to Modern Retail, China:, Indian Retail Forum, September 2011, Accessed June 10, 2013;
http://www.indiaretailing.com/presentations/irf_presentations_2011.aspx
19
Rapid Expansion – The Inevitable Comparison with China
Modern retail penetration is a function of market acceptance, easy availability of finance at competitive rates and
the inherent ability of the retailer to scale up operations. A friendlier FDI policy in the retail sector, better retail
space availability and good infrastructure can help accelerate this process. Looking at China, we find that retail
penetration is four times more than that of India. China makes for a good comparison given the vast and diverse
nature of its market, which is similar to that in India.
If one looks at the growth of the top 100 retail chains in China during 2003-2007, the number of stores has
increased by about 400% from around 20,000 stores to over 100,000 stores. During this period, collective revenues
have nearly tripled (see Figure 1).
Year
Retail Sales (Billion Yuan)
Year-on-year growth
Number of stores
Year-on-year growth
2003
358
45%
20,424
20%
2004
497
39%
30,416
49%
2005
708
42%
38,260
26%
2006
855
21%
69,100
81%
2007
1,002
17%
105,191
52%
2008
1,200
20%
120,775
15%
2009
1,360
13%
137,000
13%
2010
1,660
22%
150,000
9%
2011
1,651*
20%**
Figure 1: Quantum Leap - Performance of top 100 retail chains in China from 2003-2011
* Sales in 2011 were lower than 2010 due to adjustment in survey methodology.
**Adjusted year-on-year growth was 20%
Source: China's Retail Market Update, September 2012, Fung Group, China Distribution & Trading, Issue 85, June
2011, Li Fung Research Centre,
Note: High growth in store numbers in 2006-2010 is due to exceptionally rapid store expansion of a few retailers in
the rural market.
1 Yuan = USD 0.156691
In China, it is interesting to note that 16 of the top 20 retail chains are homegrown. Foreign players have grown at a
relatively slower expansion pace. This may be attributed to the reluctance to use the franchise route and timely
20
post mergers and acquisitions (M&A) integration. Localization poses its challenges and mere transplantation of a
successful model from overseas may not always work well.
The top 30 retail chains in India have annual revenues of nearly USD 9 billion and 12,500 stores. In comparison, the
top 30 Chinese retail chains have almost 130,000 stores and revenues of nearly USD 200 billion (see Figure 2).
Revenue
(USD million)
Number
of stores
Top 30 retail chains in India
8,925
12,500
Top 30 retail chains in China
1,97,067
1,29,135
Figure 2: Comparison between the top 30 retail chains in India and China in 2011
Source: China Distribution & Trading, Issue 85, June 2011, Li Fung Research Centre, TCS research
The contrast is stark with no department store chain in India larger than four million square feet. Even in the food
and grocery space, only one retailer has more than eight million square feet. It remains to be seen whether this
expansion is sustainable and whether the stores will be operationally profitable. Though China is a much bigger
country, the lesson is clear - Indian retail will have to prepare for and make a similar leap.
Expansion Challenges that Indian Retailers Face
Retailers face multiple organizational challenges in rapid expansion. These can range from the lack of appropriate
professionals to lead and manage the expansion process and inadequate business processes, to the absence of
robust and evolved back-end IT systems which can support the scale. They also need teams that can collaborate
and deliver on stiff deadlines, a dependable supply chain that can cater to wide geographies, and the ability to
sustain the expansion by ensuring that the stores are profitable. Moreover, they need to be successful by building
strong brand recall and gaining customer loyalty. It is all about creating a strong, scalable organization structure
and a culture that allows for rapid expansion. Therefore, there are a few visible elements and some less visible
elements at play.
2.1.1The Visible Challenges
n
Difficulties in Property Selection – Finding the right locations, standalone or in a mall, becomes a challenge with
developers unaware of retail essentials. Most developers do not quickly understand modern retail design and its
specific needs like adequate parking infrastructure, the right brand mix and so on.
n
Complications in Legal Clearances - The absence of a single nodal agency leads to challenges, as retailers need
to coordinate with multiple authorities to get clearances. It is common to see a store set up with trained staff
and tested systems, but unable to conduct business due to the delay in getting a license.
21
n
Lack of Comprehensive Market Research – Often property selection is based on the 'gut feel' of an individual
(which could eventually turn out to be a good decision). Market research and catchment area studies are absent
or given minimal attention, impacting other important decisions pertaining to category mix customization and
category adjacencies. This could affect the variety of store offerings, repeat footfalls and consequently, store
profitability.
n
Challenges in Building a Dependable Supply Chain –Since retailers in India typically begin their operations with
a regional strategy, scaling it up to cater to multiple regions can be time consuming. Setting up a robust supply
chain continues to be a challenge.
n
Inadequate Internal Processes – Selective attention to process compliance, which is usually confined to store
operations and finance and accounting functions due to reporting and statutory obligations, implies that
processes for opening new stores are either not created or put together rather sketchily. This adversely impacts
quick expansion. Even where processes exist, they are seldom revisited and reviewed on a regular basis.
n
Difficulties in Retention and Knowledge Management – Expansion calls for taking on greater workload and
ownership. In order to run the existing business well and also organize for expansion programs, retailers need to
retain experienced staff. High attrition coupled with the absence of knowledge management systems
sometimes hampers quick expansion.
n
Legacy IT Systems and Associated Issues –The need for richer retail functionality both at the back-end and storefront, robust IT architecture, data integrity, and the ability to interface smoothly with other applications
increases as a retailer grows in scale and maturity. Legacy IT systems need to be upgraded to handle this.
n
Choice between Store level Profitability and Expansion – There are retailers who believe in ensuring store
profitability before embarking on expansion and there are others who expand first and ensure profitability later.
The former approach is time consuming and could result in lost opportunities while the latter could result in a
first-mover advantage at the cost of revamps and internal corrections. Both approaches have been adopted in
the Indian market.
2.1.2 The 'Less Visible' Challenges
n
Creating an Appropriate Model for Tier II and III Towns – Most retailers use a 'cookie cutter' approach tailored for
the metros and often the only changes seen at the store-front are in store sizing, fixtures and design elements.
Local language communication and category mix are given a miss at times and this could result in a big
disconnect with customers in the smaller markets. It is only when the stores do not perform as expected, that
the introspection begins. Given that these markets are increasingly becoming focus areas for retail expansion,
retailers would be well advised to have a separate strategy in place to cater to the different markets they intend
to operate in.
n
Enabling an Effective Project Management Structure – Rapid expansion calls for creating special focus teams.
The existing organization structure may prove to be inadequate to the needs of rapid expansion. Quick decision
making, greater communication between stakeholders and the need for multiple iterations at the planning
stage are some key prerequisites for the expansion of operations to new locations. Using the existing
organization structure could create conflicts and delays, which could be easily avoided if a dedicated team were
in place.
22
n
Supplier Relationships – Suppliers are strategic partners in a retailer's journey and they play a more critical role
during rapid expansion. Most middle managers fail to appreciate this. They tend to view suppliers as easily
replaceable and judge them purely on the basis of margins. The lack of supplier support during the expansion
phase can be a major roadblock.
n
Collaboration between Various Functions – Rapid expansion calls for close collaboration between stakeholders
across the organization. Retailers need appropriate structures to handle conflict situations. Store design, for
instance, is an iterative process between the merchandising and store planning teams. There are potential areas
of conflict on category adjacencies and representation within the store. Profitability and the 'look and feel' of the
store need to be balanced, especially in fashion retailing. For most retailers, this is an area of possible delay.
Key Imperatives in Rapid Retail Expansion
Key Imperatives in Rapid Retail Expansion
Strategic
Visible
Property Pipeline
Profitability Model
Different Markets – Different Formats
Robust and Evolved IT Systems
Strong Supply Chain Backbone
Talent Management
Less Visible
Knowledge Management
Supplier Partnership
Operational
Strong Project Management Structure
Preferred Vendors for Store Fixtures
New Store Profitability Focus
Documenting the learning from store openings
for constant improvement
Creating culture of process compliance
Ensuring effective collaboration between
merchandising, as well as store planning and
project teams
Figure 3: Key imperatives in rapid retail expansion
I. Strategic Initiatives
n
Building a Steady Pipeline of Properties –It is important to have multiple property options so that if one option
does not fructify, there are others that can be closed out quickly. Retailers who have an in-house real estate arm
have benefitted enormously and have been able to leverage this to expand much quicker than others.
n
Getting the Profitability Model Right –The focus should be on getting the profitability model right the first time.
Rapid and sustainable expansion can only begin when retailers are sure of their offering and profitability model.
Though store closures are inevitable, it is crucial to minimize them.
n
Using Different Horses for Different Courses – India is a vast country with varied markets, tastes and strong
regional preferences. It is essential that retailers view every region or market as unique. While there are many
commonalities, customization is the key for sustaining customer interest and loyalty. Therefore, retailers must
evolve or tweak formats to cater to different markets.
23
n
Managing Talent and Knowledge – It is important to manage the issue of attrition promptly and
comprehensively. One way is to move internal professionals up the ladder to fill middle management and future
leadership positions. Retailers need to create a comprehensive people strategy before considering rapid
expansion. Knowledge retention is a critical area and retailers can avoid reinventing the wheel if they ensure that
key employees do not leave the system. A good knowledge management system is a strategic advantage.
n
Treating Suppliers as True Partners – Suppliers are key contributors to the retail business and it is important to
share expansion plans with them in order to establish long term supplier relationships. It will pay rich dividends
if retailers ensure suppliers' involvement right from the planning stage. Suppliers are vast storehouses of
knowledge and can provide critical market insights that help avoid costly rework. Giving suppliers' views more
importance creates a stake for them in the retailer's growth and also ensures their active participation.
n
Developing Tier II and III Strategy –The shift from more evolved markets to the hinterland requires not only a
change in offering but also a change in mindset. A sharply focused tier II and III strategy is imperative for rapid
expansion in India.
n
Creating a Strong Back-Bone – The retailers' supply chain strategy must be in tandem with their expansion
strategy. It is important to create a distributed supply chain model that can support expansion to different
regions. The model also needs to be agile enough to handle elements like direct store delivery for perishables
and localized offerings, inter-store transfers as well as efficient reverse logistics.
n
Implementing Robust and Evolved IT Systems –The back-end merchandising system, supply chain and Point of
Sale (POS) systems need to be sufficiently evolved to handle complexities of scale and offer good integration
options with other applications like a planning module, Customer Relationship Management (CRM) solution, Ecommerce module, analytics, and Electronic data Interchange (EDI) for vendor integration. Staff training on the
various applications is a necessity and IT vendor maintenance and support is critical.
II. Operational Initiatives
n
Creating a Strong Project Management Structure – Retailers need to create a single nodal agency reporting into
the CEO that has a bird's eye view of the expansion efforts. This can help them identify, highlight and resolve
conflicts between departments. The team should be managed by a retail veteran who understands the
organizational dynamics and can guide the project through challenging periods.
n
Documenting Learning from Store Openings – It is a good practice to create a formal methodology to capture
learning and share it with the rest of the organization. There is a wealth of wisdom that can be gained from store
openings and from operating in diverse markets which could be used elsewhere in the organization. It is
important to use this information to improve new store set ups and for significant time and cost savings.
n
Creating a Culture of Process Compliance – Retail processes and systems need to be strengthened before
embarking on expansion. This involves a number of decision points starting with market research and
culminating in the opening of the store. This needs to be enabled by processes. It is essential that a culture of
process compliance is created so that the existing business goes in tandem with rapid expansion.
24
n
Facilitating Effective Collaboration between Merchandising and Store Planning and Projects Functions – This can
be accomplished by implementing necessary structures to reduce time taken to set up new stores and resolve
conflicts. Some of these structures are:
n
n
n
Two separate teams for projects - one for regular store renovation and repairs and another for green field
projects. Often store project teams are saddled with the additional burden of regular, ongoing, minor layout
adjustments or repairs and renovations of secondary importance. Having separate teams creates the
necessary focus, and large-scale renovations can be treated on par with green field projects given the scale
and cost involved.
Cookie cutter approach can be used to the extent possible to standardize store design. This can enable
clustering of stores, establish certain principles for faster store design creation and yet allow for customization
to cater to individual markets.
Liaison staff for interacting with merchandising, finance and legal functions as a part of the store planning and
project teams. Due to regular interaction of commercial staff with these teams, it can be a smart move to have
commercial personnel as part of the projects team. This person can liaise with other stakeholders to speed up
the process and also ensure open and transparent communication. This can enable them to flag issues at an
early stage and highlight potential roadblocks if any.
n
Identifying Preferred Vendors for Store Fixture Requirements – In a large scale expansion, store fixtures need to
be ordered in bulk frequently and delivery scheduled as per store openings. Retailers must identify and in some
cases even help develop specific vendors who understand their needs and deliver economically within
timelines.
n
Creating Company-wide Metrics with Focus on Rigorous Performance Assessment – Retailers need to ensure the
use of standardized, company-wide metrics in review meetings to help managers look beyond sales. Companywide metrics also provide a platform for collaboration between traditional rivals in merchandising and stores.
This was successfully followed by Home Depot in its rapid expansion phase.
n
Handing over New Stores to 'Nannies' – New stores need special focus. There may be a need to recalibrate and
tweak operations based on the performance in the first three to six months. Retailers need to hand over new
stores to a team of 'nannies' who can quickly identify operating flaws and can take immediate steps to plug leaks
and loopholes to make the store profitable. They must use analytics to the maximum extent to spot outliers.
25
Conclusion
Successful retail expansion is the result of a well-thought-out strategy, careful homework and preparedness across
various facets of the organization. It involves visible elements such as an organization structure that is suited for
rapid expansion, specific departments to handle its various elements, investments in people, technology, systems
and processes that can manage scale, strong back-end infrastructure such as a seasoned buying and
merchandising team, projects and store planning team, a robust supply chain and strong supplier partnerships. On
the other hand, it also includes less visible elements such as the ability of the organization and its people to
manage the unpredictable external environment. Retailers also need to ensure good inter-department
collaboration, knowledge management, investments in staff training and quality of middle management. The other
success factors can be the style of decision making at the senior levels, an inclusive organizational culture,
employee independence and the capacity of the organization to learn and adapt to the rapidly evolving market
place with increasing competition and demanding customers.
We believe that if Indian retailers reorganize themselves, implement the necessary structures and systems, and,
more importantly, evolve a suitable culture, they can achieve rapid, large-scale, sustainable expansion.
26
2.2 Here's what it's like to be in your customer's shoes!
- Sanjeev Seshagiri Athreya
Introduction
ACT I Scene I
Location: Local supermarket
Time: Saturday, 7:00 pm
Kevin, his wife and their two children aged two and five are in the local supermarket trying to complete their
monthly grocery shopping. They are in a hurry to get home in time to watch the IPL semi-final game at 8:30 pm.
They decide to take separate shopping carts and split the shopping list between them to save time and get to the
cash tills faster. They skillfully navigate the cramped aisles of the supermarket, manage their little ones at the same
time, and reach the queue at the cash counter by 7:25 pm. While waiting in the shortest queue which has six
customers, Kevin tells his wife about some good deals that he has seen during shopping. They notice the new Point
of Sale (POS) systems and wait for their turn patiently, hoping to reach home in time for the game.
The supermarket has recently installed a new POS system to improve billing speed and accuracy, manage
promotions better and ensure more effective control on pricing, discounts and cash management. However, on this
particular day, there are long queues, irate customers and nervous cashiers. The billing takes a long time for every
customer and at the end of the process, there are complaints galore.
Kevin and his family finally reach the cash till at 8:00 pm and the billing takes another 15 minutes. Unfortunately,
there are multiple errors and issues that need clarifications. They are forced to leave some items behind, as these
could not be billed. This is quite a harrowing experience, and they make their way back home, knowing that they
had missed the first half of the match. They decide that they would not shop at this supermarket again.
Imagine if we could rewrite the scene this way.
Act I Scene I (redone)
Location: Local supermarket
Time: Saturday, 7:00 pm
Kevin and his family join a queue that has only three customers in it. They reach the cash till in 12 minutes and
complete their transaction in four minutes with no billing errors. They drive home comfortably in time to watch the
match from the beginning. They are very happy with their entire shopping experience at the supermarket.
It is interesting to take a look at such pain points from a customer's perspective:
27
Pain Points
Let us take a look at some of the challenges a customer might face while shopping:
n
There were price mismatches between the signage on the shop floor and the prices on the POS system.
n
The cash memo was confusing to read and difficult to understand.
n
The customer needed to ensure that the 'Buy 2 Get 1 Free' promotion items were billed correctly.
n
The supermarket had a weighing scale at the billing counter earlier and customers could weigh and bill
vegetables at the cash till, but that changed with the new POS. Now customers had to leave the queue and go
back to get them weighed first if they had forgotten to weigh them earlier.
A detailed inspection of the cash memo revealed the following:
₋ Spinach had not been discounted despite the discount signage at the 'Fresh Vegetables' section and the
cashier expressed his inability to give any discount saying it was not possible to offer that promotion. The
store traditionally had a promotion of '30% off' on spinach between 6:00 pm and 9:00 pm.
₋ There were no item-level discounts appearing on the sales invoice.
₋ The total savings amount (to the customer) was missing in the sales invoice.
Though the store had touch screens at the POS, the left-handed cashiers seemed to have greater difficulties in
using them.
The Real Issue
On closer inspection, the issue does not seem to be part of the teething problems and system malfunctions
involved in implementing a new POS system. It seems to be more serious than that. Let us go through each of the
pain points that customers faced and try to understand if these could have been tackled earlier while configuring
the POS.
Illustrative Customer Pain Point
Possible POS Configuration Solution
1
Price was mismatched
Price override by supervisor
2
Sales invoice was confusing to read
Layout of the sales invoice made simpler
3
Spinach promo item was missing
‘Happy hour’ promotion functionality to be used
4
Weighing scale was moved away
Weighing scale integration at POS
5
Discounts were missing on cash memo
Item level discounts
6
Total savings amount was missing on the cash memo
Free text field with total savings computed
7
POS touch screen was difficult to use
Touch screen layout customization as per user
preference – in this case left handed people
28
It is critical to investigate why these situations occurred in the first place, especially in a supermarket which had
kept its customers happy with its range of merchandise, successful promotions and great billing speed and
accuracy using an older system.
The Genesis of the Problem
About four months ago, the supermarket had been taken over by a larger retailer. One of the first priorities that the
retailer had was to implement the new POS system. As the retailer was focused on rapid expansion, the decision to
implement the new POS system was made quickly and the implementation commenced. There were many issues
including unreasonable timelines for the implementation, a limited number of resources, and low budgets. The
initiative received inadequate time and support from the business. Due to limited budgets, it was given to IT
consultants who, though technically competent, had limited practical retail business understanding. Moreover,
instead of a business consultant, they had a junior business analyst in their team, who interfaced with the business
stakeholders. There was inadequate business representation from the middle managerial level, which was
compounded by a flurry of exits and a lack of top-level business sponsorship.
Such situations are quite common in many Indian retail organizations where the number of employees at the
senior management level was reduced during the slowdown and remained low thereafter. Most middle managers
are not experienced enough to lead an Enterprise Resource Planning (ERP) implementation. With expansion back
on the agenda, there is additional pressure on fewer senior professionals to focus on store expansion, current
business performance and also devote quality time to ERP implementation. Often it is the CTO who sponsors the
initiative and leads it from the business. It is seen as an 'IT initiative'. And when the business (store operations and
Buying and Merchandising teams) do not take ownership, mistakes such as these are bound to occur.
Let us take a look at the critical gaps:
n
Three competing systems were evaluated in haste, of which one was selected.
n
The focus was on completing the implementation by the target date at the risk of ignoring key business
requirements.
n
Detailed business requirements were not gathered for system evaluation.
n
The detailed mapping of business requirements to systems was not conducted.
n
The gaps mentioned above led to poor product selection.
n
Detailed gap analysis between the system functionality and business needs was not conducted.
n
The representation of store operations during the implementation was inadequate.
n
There was no top-level business sponsorship for the project.
n
The Conference Room Pilot (CRP) stage was diluted due to time constraints.
n
There were limited discussions on the customer requirements at the store.
n
A customer walkthrough of systems was not conducted and there was no ownership of the end-customer
experience.
29
Safeguards for POS Implementation
What minimum precautions can be taken to ensure that customer focus is not lost during POS implementation?
Critical safeguards during the IT product selection
n
Ensure that the team implementing the solution consists of business consultants who understand the domain
well along with the IT landscape. They can act as spokespersons for the business and customers during the ERP
implementation.
n
Map all current customer facing processes as part of the process mapping exercise.
n
Map current business requirements with the new system that is being proposed and conduct a fitment study.
n
Conduct a detailed gap analysis between system functionalities and business requirements including customer
requirements.
n
Prioritize the gaps based on importance.
n
Plug the gaps by system modification or by way of a process change.
n
Classify the gaps as Critical, Moderate, and Low.
n
Assess the extent of customization required in the product to meet the requirements.
n
Prioritize the customization required with a buy-in from business teams.
n
Ensure adequate participation from business stakeholders, especially key store operations personnel.
Critical safeguards during the actual POS configuration and implementation
n
Ensure that the sponsor from the business is a senior person (preferably a CEO) who is able to get business
stakeholders to participate and take adequate ownership.
n
Do not dilute the Conference Room Pilot (CRP) phase due to time constraints. This is the phase when business
articulates its needs and gets a first-hand view of detailed system functionalities.
n
Ensure that the implementation team has a good mix of retail domain and product expertise so that these
critical elements are not overlooked.
n
The domain consultants can also aid in the inevitable change management that the organization goes through
before implementation and provide some handholding post the 'go live'.
n
Ensure adequate participation from middle management as this is crucial to getting the finer details right.
n
Appoint an 'end-customer' custodian who would focus on store processes from the end-customer's point of
view. This way you have someone from within the business who represents the voice of the end-customer in the
entire exercise.
n
Conduct a complete customer walkthrough at the store while testing the systems before 'go live' and ensure
that all customer exigencies are looked at. Often, financial and system controls are tested well, but the customer
convenience aspect is often pushed down the priority list or ignored. This is because business heads do not take
ownership of the ERP implementation and it is often seen as an 'IT initiative' along with some representation
from finance due to the mandatory reporting requirements.
30
Conclusion
Retailers have often witnessed customer pain points during POS implementations. All it requires is some attention
to customers' needs and an ability to anticipate their requirements. Today we live in a world where customers are
becoming more discerning. Therefore, it becomes mandatory for retailers to have the ability to meet and exceed
customer expectations. Undoubtedly, the success of a retail business depends on its ability to achieve customer
loyalty by continuously enhancing the buying experience.
31
3. Case in Point
3.1
Forays into Pharmaceutical Retailing
- Anupam Raj Gautam, Rahul Dravid, Sudip Gupta and Faraz Rizvi
Executive Summary
One of the leading business houses in Jammu and Kashmir (J&K), with business interests in cement, hospitality,
healthcare and food products, decided to venture into trading and retail. The company approached Tata
Consultancy Services (TCS) to provide assistance in exploring opportunities in the pharmacy retailing business in
J&K. The requirement was to assess the current market opportunity and growth prospects in the modern health
and wellness business.
The business house has a strong brand equity in Kashmir and enjoys a positive connect with its consumers. One of
the leading brands in the valley, the company's understanding of the local market and presence in the healthcare
sector places them in a strong position to capitalize on the market opportunity. The market in Kashmir is still
nascent and therefore has high growth potential. The company has recently launched a successful pilot store based
on our recommendations.
Background
TCS conducted an in-depth study based on the Market Attractiveness Framework (MAF) covering six aspects of
market size and growth, consumer readiness and the company's own capabilities, logistics, real estate availability
and presence of pharmaceutical companies. Based on the research, we generated different business options, which
were discussed at length with the company to arrive at the final set of options.
The study involved comprehensive consumer research (covering 700 consumers) and in-depth trade research
(covering pharmaceutical companies, retailers and distributors across various towns of Kashmir). We also added the
viewpoints of government authorities and trade associations to corroborate the findings.
Engagement Objective
The objective of the engagement was to assist the company to make a decision after a comprehensive study of the
market and its potential. After considering the viability of the project, we needed to suggest a self-sustaining model
with a distinct proposition and a suitable market strategy. We also needed to prepare a roadmap for the store roll,
apart from preparing a detailed business and financial plan.
Engagement Approach and Methodology
The engagement was conducted in two phases, described in Figure 1 below. The first phase of the engagement
was 'Concept Validation and Strategy'. The second phase was 'Implementation', which would commence only after
the first phase was completed and agreed upon.
32
Phase I: Concept Validation
Step 1: Capability
Assessment
Strategic
Direction,
Organization
Readiness,
Financial Goals,
Business Model
Step 2: Research
& Analysis
A. Market
Assessment
B. Consumer
Analysis
Step 3: Option
Evaluation
Define And
Evaluate
Strategy
Options
Phase II
Step 4: Business
Planning
Detailing the
Business
Strategy,
Develop Roll
Out &
Financial Plan
Implementation
Go/No Go
Figure 1: Overall Approach and Methodology
The first phase was to validate the concept of the business venture that the company was willing to invest in. The
approach adopted for Phase I was a four-step method:
Step1: Capability Assessment
We conducted a Organizational Capability Assessment workshop depicted in figure 2 below, with the company's
leadership team to brainstorm and understand the strategic imperatives like the overall vision for the new business,
financial goals, the business model and growth plans and ultimately the organizational readiness to achieve the
same.
Strategic Direction
n
n
n
n
Pharmacy retail
opportunity in J&K
Company's vision of
pharmacy retail
Model Strategy
n
n
n
Business positioning
Competitive
advantage, risks etc
n
Channel - Retailing,
Trading, Online
n
Product vs service
Scale - Expected
number of stores in
5 years
Organizational
Readiness
Financial Goals
n
n
Expected revenue
expenses and
profitability
Investments
Return on
investment
n
n
First-hand
experience in
pharmacy retail
Financial capability
and willingness to
invest
Brand identity Same
or different
Figure 2: Organizational Capability Assessment
33
Step2: Research and Analysis
We conducted exhaustive primary and secondary research to analyze the market and consumers in J&K, as this was
the main market for the company's new business. Figure 3 shows how the research was classified into Market
Analysis, Trade Analysis and Competition Analysis. The market assessment was conducted by interacting with the
pharmacy trading community, manufacturers and marketers of medicines, trade associations, and senior
management of pharmacy chains. This helped to understand the likely evolution of modern pharmacy business in
J&K. The research provided a fair understanding of the underlying practices in the region and helped gauge the
macro level opportunities of the pharmacy business in J&K.
Strategic Direction
n
n
n
n
n
Strategic Direction
Pharmacy market size in J&K
Key growth drivers of modern
pharmacy business
Growth rate and opportunity thereto
Retail market place evolution
Retail real estate availability and costs
n
n
n
n
n
Pharmacy retail value chain
Trade practices
Interaction with Pharma companies
Channel partners and their roles
Terms of trade
Competition
n
n
n
n
Competitor landscape
Different channels and formats of
operation
Profitability
Key success factors
Figure 3: Research and Analysis (Market Assessment)
Additionally, we also carried out specialized consumer research to capture the consumer behavior, attitude, needs
and preference towards pharmacy or healthcare purchases. After a careful scrutiny of the industry, a third party
consumer research company was chosen to carry out this research. We provided the research agency with the
parameters depicted in figure 4, to conduct the quantitative research survey on 700 respondents. This research was
in itself a unique one, as the territory was absolutely untouched by even the best research firms in the country and
no primary data was ever recorded or available to the team.
Consumer Behavior
n
n
n
n
Consumer attitude towards pharma
shopping
Consumer needs
Key buying (price, quality, service,
convenience, etc.)
Consumer segments
Consumer Spend
n
n
n
n
n
n
Share of Wallet
Buying cycle
Payment modes
Average spend on medicines or healthcare
Preferred destination to shop
Other categories
Figure 4: Research and Analysis (Consumer Analysis)
We conducted a unique discussion with the youth of Kashmir at the Kashmir University to capture the thoughts
and insights of the younger generation residing in the valley. A group of almost 200 students of various disciplines,
including women, participated in this discussion. Key insights were mapped, as this was critical to the business
positioning.
34
Step 3: Option Evaluation
On the basis of the research, various options for a modern pharmacy business were generated. These options were
based on multiple parameters such as Value Proposition (Price, Product Mix or Range, Experience, and Services),
Format, Operating Model, and Geography of Operation. Further, based on the company’s vision and subsequent
financial modeling outcomes, each option was discussed to arrive at the most viable one.
Step 4: Business Planning
We then developed a detailed business strategy and roll-out plan module with further inputs from the research
team and in concurrence with the company. The business strategy and roll-out plan was then translated into a
comprehensive financial model with the ability to simulate realistic, pessimistic and optimistic business scenarios.
Figure 5 shows the various parameters that were considered while developing the business strategy; roll out plan
and financial model.
Business Strategy
n
Target segments
n
Value proposition
n
Formats and product mix
n
Number of stores per city
Location
n
Pace of the roll-out
Organization structure
and Roles
n
n
n
n
Risks and risk mitigation
strategy
Financial Model
Roll Out Plan
n
Number of cities or towns
to target
Roll-out plan of
additional infrastructure
(warehouse, office, space,
IT, etc.)
n
n
n
n
Sales projections by
channels, category, etc
Profitability, gross margin.
Internal Rate of return (IRR),
Return on Investment (ROI)
Operating and other
expenses
Investments : store, back
and infrastructure, working
capital etc.
Figure 5: Business plan flow
Conclusion
The business environment in J&K has been largely ignored, but the consumers there are aware, demanding and
have the ability to pay for better products and services. The company values the business potential and
opportunity and has recently launched a successful pilot store based on our recommendations.
35
3.2 Tata Starbucks India Launch – Business Process Management and Core System
Selection
- Kedar Mehta and Anupam Raj Gautam
Abstract
Starbucks, a global retailer of specialty coffee, entered into a joint venture with India's premier business house – the
Tata Group in 2011. The launch of the Indian coffee retail chain – Tata Starbucks - took place in 2012 and the initial
business plan envisaged the opening of over 100 stores in three years. The objective was to incorporate best
practices from both the organizations and adapt them to suit the Indian market. The first Tata Starbucks store
opened in Mumbai in October 2012 and has been extremely well received in the market.
About Tata Starbucks India
Tata Starbucks Ltd.is the 50/50 joint venture between Starbucks Coffee Company and Tata Global Beverages.
Starbucks Corporation is an American global coffee company and coffeehouse chain based in Seattle, Washington
and with 20,891 stores in 62 countries, one of the largest coffeehouse companies in the world.
Tata Global Beverages Limited, a part of the Tata Group and an Indian multinational non-alcoholic beverages
company, is the world's second largest manufacturer and distributor of tea and a major producer of coffee.
Starbucks, through an agreement with Tata Coffee, serves coffee that is 100% locally sourced and roasted. The
company plans to open 100+ stores in India, within 3 years.
Industry
Retail services industry
Offering
Consulting on Business Process Management and Core System Selection
Business Challenge
Starbucks needed to understand consumer behavior in India and then customize its products and services to suit
local market conditions. This meant customizing their global retail business process to the specific characteristics of
the Indian coffee retail market, while retaining the high standards from the company's global best practices. This
needed to be delivered in the form of a robust Standard Operating Procedure (SOP) document that would cover
the core processes of the coffee retail business: Plan, Buy, Move, Sell, and Service. The company needed to use
business process SOPs to outline a high-level requirements document that would enable it to select a system
suitable to the Indian joint venture entity.
36
TCS' Role
The TCS team assisted the company on various aspects to meet its objectives.
Consulting
We evaluated the dynamics of the retail market for coffee in India as well as the consumer behavior and identified
industry best practices. Additionally, we provided detailed competitor analysis and recommendations on adopting
and customizing core business processes. We conducted an exhaustive review of existing customer collateral.
Workshops with key client stakeholders in India, Asia Pacific and the USA were conducted to finalize the business
processes and the SOP templates for the Indian business. We organized field visits to leading Indian retail coffee
retailers, who are TCS customers, and arranged for system demonstrations during these visits. We added value to
the engagement in the form of the Loyalty Program Ideation presentation and workshop, for the retail chain in
India.
Business Process SOPs and Core System Selection
We assisted Starbucks on business process SOPs and core system selection by compiling exhaustive SOP
documents covering the core business processes of the coffee retail business- (P/B/M/S/S) processes. We harnessed
our prior experience to convey insights on store opening and marketing, distribution and logistics, category
management and New Store Opening (NSO). We prepared a high-level business requirements document with
solution demos and system functionality fitment evaluation for the shortlisted POS and ERP systems and shared
recommendations for system selection. We advised Senior Executive stakeholders on best practices and business
process amendments.
Results
The first Starbucks India store opened within six months of undertaking this assignment and achieved the
organization's target of establishing a presence in India by 2012.
Tata Starbucks India Launch – 18 October' 12 – Flagship Store at Fort, Mumbai
37
38
39
4. In Focus
4.1 United we stand, divided we fall!
Innovative collaboration model for Indian e-commerce players
- Abhishek Pangaria, Rahul Dravid, and Prateek Rastogi
Executive Summary
E-tailing has been a buzzword in the retail arena for the last couple of years and continues to be so in India even
today. The emergence of numerous new players, the consolidation or exit of existing companies and innovations in
service offerings, will ensure that the buzz intensifies in future. Amidst all this chaos, e-tailing companies have been
frantically working out ways to keep tabs on operating expenses while striving to understand customer
expectations and deliver on them.
New and niche e-tailers with limited access to funds are feeling the heat more than their well-funded counterparts.
Apart from customer acquisitions, these e-tailers are facing challenges in streamlining their operations related to
logistics, Customer Relationship Management (CRM), marketing, and analytics.
E-tailers, irrespective of their size, need to have a discerning outlook for sustainable and profitable growth. Indian etailers need to look at new ways to streamline their operations. They can overcome existing the challenges of high
costs and higher customer expectations by learning from the experiences of their global business and industry
counterparts. In this article we focus on how collaboration can help define the e-tailing environment of tomorrow.
The Young Indian
Sachin, 33, represents the young Indian- high aspirations and an equally high appetite to explore. Sachin is an avid
online shopper and spends almost an hour a day reading, searching and shopping for products or services online.
Sachin manages to fulfill most of his requirements and wish-lists through the various websites he visits. He spends
Rs. 30,000 on Firstcry.com for a Graco stroller and buys a crib for Rs. 10,000 on Babyoye.com, after a significant
amount of research. He picks up a Casio wrist watch from Pepperfry.com and they deliver it to his dad at his native
place, somewhere in rural Maharashtra. He represents the consumer that all e-tailing companies are chasing. They
are not looking at just one time conversion but are also working hard to retain him for continued business.
Even though Sachin is a prime target for all these e-tailers, his experience with online shopping has been a mixed
bag. Before each transaction, he still needs to do extensive research to ascertain if the e-tailer can deliver to his
native place. His inbox gets swamped by emails daily from each portal where he is registered (most of which go
unread and directly into the trash folder) and he still cannot find the products he is looking for, in promotional
campaigns.
40
Doesn't this sound familiar?
Collaborative Alliance
To serve Sachin and all other customers satisfactorily, e-tailers must evolve or perish. Evolution can be in the form of
bringing in new products or services, building new features through the use of technology or through numerous
other ways that entrepreneurs around the globe are exploring every day. Collaborative alliance among e-tailers is
one such mode of evolution. It can build an ecosystem to create value for both, businesses as well as customers.
Alliances can be created among e-tailers based on strategic or tactical inputs or specific functional requirements.
Small and niche e-tailers, dealing in differentiated product categories, can form an alliance to create an integrated
value chain. Private equity funds can look to consolidate operations across their portfolio companies; promoters
can get together to address their challenges collectively. Irrespective of the basis for the alliance, we believe that a
well-thought-out alliance across the key functions could become game changing drivers for e-commerce in India.
We believe that collaboration around logistics, product management, marketing, CRM and analytics can bring in
significant benefits to companies and also assist in keeping customers like Sachin actively engaged.
Logistics
Analytics
CRM &
Loyalty
Management
Product
Management
Marketing
41
Logistics
Ever since young entrepreneurs backed by strong funding penetrated the e-tailing marketplace in India, delivery
logistics has remained the foremost focus of innovation and concern alike. Companies are going all out to lure
consumers and beat competition at all costs. The overall effect has been detrimental for the long term sustainability
of the business. Today, although the order numbers have grown exponentially, logistic services have not
demonstrated any significant improvement in their maturity.
Large e-tailers have set up delivery services on their own, while smaller players are still relying on services provided
by third-party logistics companies and e-tail specific companies like Delhivery.com, Chhotu.in and
Holisolindia.com. In both scenarios, there is a strain on the bottom line; last mile deliveries and reverse logistics
issues too remain unresolved.
Currently, e-tailers spend close to 10-15% of their revenues on logistics. Additionally, there is a challenge in
providing last mile delivery to remote towns and cities. Third-party logistics service providers cover just 20% of the
pin-codes in India and around 30,000 pin-codes are still non-serviceable.
E-tailers, in our view, must look at how they can leverage delivery models of other businesses to their advantage.
For instance, setting up remote location pick-up points (cue from multi-level marketing companies as discussed in
the TCS whitepaper 'Bricks Clicks and More'1) is a viable operating model.
Players in several industries, such as the telecom industry, engage in passive infrastructure sharing for non-core
business functions. This model can easily be adopted by e-tailing ventures in India. Young entrepreneurs will
understand the importance of collaborating to win, rather than give up or give in.
We believe that an alliance or collaboration for last mile delivery and reverse logistics will assist companies in
overcoming the challenges faced by them in the current environment. A collaborative approach to logistics will
entail synchronization of orders, capacity and delivery. Alliance partners can tie-up with a single logistics partner to
gain economies of scale or form a joint venture. A wider alliance will mean more orders and hence more business
for the logistics partner. For Sachin, this would mean a consistent and assured delivery service for all his online
transactions.
Marketing
E-tailers are burning cash to fuel growth. They are spending heavily on advertising and marketing. The costs
incurred to offer large discounts and provide free shipping, as well as other delivery related costs are being
recorded as marketing expenses, thus inflating the customer acquisition cost (CAC). CAC in India is increasing
rapidly. It averages around Rs. 900 and is higher than international benchmarks. In comparison, Amazon has a CAC
of US $34 , or Rs. 670 (if we factor in a Purchasing Power Parity (PPP) of 19.75)3. E-bay, on the other hand, has a far
lower CAC of US $102 or Rs. 200.
The new generation of internet users, those who have grown up with access to the internet at home and school,
will be ready to spend online by 2015. This will open up further opportunities for e-tailing in India. E-tailers need to
invest in their brand through marketing and advertising and continue to build trust, gain traction and retain their
share of wallet of the business.
[1] TCS; Bricks, Clicks and More: A Digital Commerce Perspective in the Indian Context; April 2012, Accessed August 9, 2013;
http://www.tcs.com/resources/white_papers/Pages/Bricks_Clicks_More.aspx
[2] Crmtrends; Digital Marketing Best Practices & eCRM; Accessed July 10, 2013; http://www.crmtrends.com/ecrm2.htm
[3] The Economist; The Big Mac index; July 2013; Accessed July 10, 2013; http://www.economist.com/content/big-mac-index
42
We believe that it will be tough for new and niche e-tailers to survive in this battlefield without forming an alliance
to counter the challenges of high CAC and marketing costs. A large alliance of e-tailers will give them the option of
using different marketing platforms to reach a wider audience in a cost-effective manner.
Combined marketing campaigns by alliance partners will help them to use expensive mass media advertising in an
efficient manner.
Product Management
Every category manager in the e-tailing industry faces three primary challenges:
1. Source or buy products that are desirable, fresh, and provide value for money to the consumer.
2. Source or buy products at the most competitive price.
3. Keep product development, production and procurement costs to the minimum.
These challenges become even bigger, if one is a new entrant or is trying to be a niche player. When an e-tailer tries
to offer products that address the first challenge, it needs to invest in people with skills and knowhow related to
the product category, product design and development.
It is possible to offer lower prices when they are balanced by higher volumes and long-term commitments, a
challenge for most e-tailers at this stage. And while businesses grapple to gain foothold in the business,
inappropriate product categories, procured at lower gross margins and higher cost, consequently put immense
pressure on profitability and sustainability. Even in high margin categories like books, fashion and home
furnishings, where a retailer may be able to command a gross margin in the range of 40-60%, it is possible to earn
only 30-50%, as the cost of servicing the order itself is around 40-60% of the sales.
Let us envisage a scenario where there is an alliance amongst the e-tailers and they have an established product
management cell. This cell could enable new e-tailing companies to join it and leverage the product development
skills and knowhow and shorten the time and cost to market.
Similarly, e-tailers can forge alliances and empanel common vendors. These members can have more bargaining
power due to the overall commitment from alliance partners and the collective buying power of the alliance
members.
E-tailers in the alliance can look to sell their branded products on each other's websites. They can negotiate special
terms of trade, barter deals and liquidation opportunities for slow moving products. This can prove beneficial to all
partners and help them to reduce costs.
CRM and Loyalty Management
E-tailers, big or small, are finding it tough to retain customers. Today, an Indian online customer is driven by
discounts and makes the purchase decision after comparing prices both online and offline. The high cost of
attracting new customers and difficulties in retaining them make customer loyalty a necessity for e-tailers. Instead
of resorting to a price war, e-tailers need to find innovative ways to gain customer loyalty and thus create brands
that consumers trust.
43
Taking a cue from the global airline alliances like Star Alliance and OneWorld, that offer to aggregate miles gained
across all partner airlines, online retailers can also form alliances to provide rewarding shopping experiences to
their customers. With a wider alliance and customer base, loyalty programs can be managed very effectively and
even be outsourced to an efficient service provider. Rewards program can be designed in such a way that a
customer can earn reward points on every purchase from any partner site and rewards points can be redeemed
across alliance partners.
Small e-tailers may not be in a position to outsource their contact center operations to a large and efficient service
provider. However, a consortium of e-tailers have scale and hence better negotiating power to engage the services
of a high-end customer care service provider. This can result in improved customer service without significant
investment of time or money.
To go back to the young Indian - Sachin, this would mean a consistent experience across the network while
accumulating enough loyalty points to, maybe, gift himself a bottle of champagne.
Analytics
Analytics in e-tailing plays a major role in helping e-tailers understand customer and formulate strategies not only
to retain existing customers but also acquire new ones. Most e-tailing companies are expending resources to
leverage Google analytics, Facebook data analytics or similar information feeds, to drive insight driven business
decisions.
For instance, would Zovi.com not like to know that Sachin is a premium customer and that they can send him a
mailer on their latest linen shirt collection or present him with an appropriate banner next time he visits
Firstcry.com. Similarly, Fabfurnish.com can benefit from the information on crib sales at Babyoye.com and reach
out to Sachin with its collection of bedspreads and quilts.
Alliance partners can share the information gathered from the web, social media analytics, and transactions to
better understand consumer behavior. Sharing of analytical information will help partners work on marketing and
product management strategies that are focused to the last level of detail and bring down customer acquisition
and retention cost to a fraction of their present spends. The ethical and legal concerns around sharing of
information across companies need to be given due consideration when formulating and implementing these
strategies.
Conclusion
The nature of the e-tailing business is extremely challenging and dynamic. It is very difficult for new and small
players to focus on the divergent aspects of business with limited access to funds. A collaborative alliance can give
them enough strength to continue for a longer period in a sustainable and profitable manner.
A collaborative approach can help e-tailers experience mature business processes that are cost-efficient, provide
better customer satisfaction and enable strong revenue potential. Upfront investment on non-core activities can
be reduced and management can focus on core activities that can help them differentiate in a crowded
marketplace.
The benefits of a collaborative alliance can go far beyond just preventing organizations from the risk of fading into
oblivion. The e-tailing industry should promote active collaboration as this will eventually benefit all stakeholders.
44
About TCS' Global Consulting Practice
TCS' Global Consulting Practice (GCP) is a key component in how TCS delivers additional value to
clients. Using our collective industry insight, technology expertise, and consulting know-how, we
partner with enterprises worldwide to deliver integrated end-to-end IT enabled business
transformation services.
By tapping our worldwide pool of resources - onsite, offshore and near-shore, our high caliber
consultants leverage solution accelerators and practice capabilities, balanced with our knowledge
of local market demands, to enable enterprises to effectively meet their business goals.
GCP spearheads TCS' consulting capacity with consultants located in North America, UK, Europe,
Asia Pacific, India, Ibero-America and Australia.
Contact
To know more about us, contact [email protected]
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