“Online Pricing”; the “Dilemma before #ConsumerElectronics Brands” | Shyamanuja Das | ET Retail

” If they do not keep up with the times, someone else will…Maybe, that someone is already here…??

Ironic it may sound ; but even as “electronic products” have emerged as the ” Top selling category “in ” #IndianRetailE-Commerce, the top electronic brands are engaged in a proxy battle with the online retailers, ostensibly on behalf of the brick-and-mortar retailers and distributors. The contentious issue is, of course, the pricing of products by online retailers, which are offering huge discounts to consumers. The offline / Brick and Mortar, Retailers, are finding it difficult to compete and the OEMs are taking on the E-tailers / E-commerce companies, on their behalf…!!

But the difference in “approaches of Two sets of OEMs is hard to miss”…

The first group, for whom consumers are just one of the target segments-such as Lenovo, Toshiba, and even Canon-has come out in the open with war cry against e-tailers. Some of them have issued advisories to consumers saying they may not be getting warranty and services while buying from online retailers. Many have even warned consumers of the possibility of ending up with fake products.

The other group, consisting mostly of #ConsumerFocusedBrands (read phone makers) like Samsung, Apple and Nokia, is far more measured in its approach. These brands understand the criticality of online channels and selling and strengthening their brand through those channels and hence have preferred the path of discussion and negotiations with them, without coming out in the open.

Yet, they also seem to be worried about the phenomenon. The Economic Times reported some time back that senior official of the #TopThreePhoneMakers, met to discuss the issue, even as they keep fighting fiercely in the market place. That itself is a good pointer to how serious the issue has become for them. As the article rightly points out, it is similar to the situation which united the book trade in the US when it faced the Amazon challenge..

One up in Pricing:

But what enables the e-tailers to offer such huge discount? Part of the reason-and this also happens to be the more politically correct part to quote in this big debate-is the inherent efficiency of their model. With no brick and mortar stores in prime real estate, their overheads are low. This, coupled with tight supply chains with little inventory, make them more efficient.

The other, that cannot be ignored, is the scale. Many of them such as WS Retail-the retail arm of Flipkart-have a much larger scale, say in selling mobile phones, than any of the offline stores, modern or traditional. That allows them to be aggressive on margins…!!

But is that all ?? Come to India, circa 2013-14 and you have the harsh reality-harsh for offline retailers, that is. Unlike them, many of the large online retailers are backed by huge VC money…Offline retailers accuse that they use part of that money to buy market share-by offering huge discounts. The accusation is not entirely untrue, though it may not explain the entire phenomenon..

Actually, it is a Combination of All THREE and possibly more…

One of the factors – and which is the official line taken by the sites like Flipkart, Amazon, and Snapdeal-is the marketplace model. These sites maintain that being neutral marketplaces, they do not have any control over end-user pricing, as that is decided by the numerous retailers who sell on their platforms. However gamesman-like it seems, the claim is factually correct. Of course, they vehemently deny the accusation by some OEMs that fake products get sold on their platforms. Many of the sellers, it must be pointed out, are small time offline retailers who see online as yet another inexpensive new channel to sell their products..

To the uninitiated, it must be mentioned that the ” #Marketplace-Model “, which has “emerged as the default model in India for retail e-commerce”, has less to do with any inherent strength in the model and more to do with FDI regulations, which stipulates no FDI in retail (B2C) e-commerce.

Most e-tailers changed to the “marketplace model” to comply with this “marketplace”, where they do not sell directly to the end users..

The brand at stake :

While for the IT OEMs such as Lenovo, Dell and Toshiba, the battle is all about protecting their long time loyal offline partners, for consumer brands like Samsung and Nokia, it is also a question of brand dilution, to be sold at such heavy discounts. At the same time, they also do not want to be seen by consumers as fighting with the channels (online retailers) against something that is clearly in consumer’s favor-low prices. In the day of # TwitterAndFacebookCconsumerActivism, it could even do significant damage to their #BrandPerception.

Instead of coming out with aggressive, sometimes unsubstantiated statements, the OEMs must be seen to be acting in a fair manner that is in the interest of the consumers. Some of the questions that they need to examine and answer to themselves, consumers and the community at large is as follows…

How are the advisories that they have issued urging the consumers not to buy from online sites in the interest of consumers ?

Why should they withdraw the warranty that is offered with the products, whether it is from online or offline channels? Is it legal to do so ? Why should they make the consumer suffer ? They may probably offer additional warranty if consumers buy the products from offline stores. But how and why should they withdraw the basic warranty ?

Can they substantiate the claim that some online channels are selling fake or smuggled products ? If they can, they must come out in public with specifics and, with the help of legal system, must take strong action against the erring sellers. This will establish their credibility. The failure to do so will put serious question marks on their credibility.

They must seriously examine if online retailers are doing any price cutting using VC money to buy market share, as many offline retailers accuse. If the e-tailers are resorting to any unfair means of competition and violating any provisions of The Competition Act 2002, they must be dealt with using the law of the land. In any case, it is not a single player who is using its market power or staying power ; it is a large set of players which are accused of buying market share…

The future is already here:

But more than just fairness and long term brand dilution fears, the top phone makers have a bigger challenge at hand-something that regional middle level managers can be made to appreciate much better-market share…Many executives in the consumer electronics companies-especially phone makers-admit that it is a choice between the present and future. They have no doubt that online is here to stay and is increasingly going to take away market share.

The question that they are really struggling with is : how far is tipping point ? But big changes seldom happen without a disruptive challenger. A new challenger has no legacy and hence pushes the new, more efficient model to create an advantage in its favor.

That may already be happening-ironically spearheaded by a company, which is the oldest mobile phone company in the world, though now starting almost afresh. Motrola Mobility, now owned by Gooogle, and now the challenger in the mobile phone market, has probably taken the most decisive step in this direction. It has chosen to sell its newly released Moto series of phones in India exclusively through Flipkart, India’s biggest online retailer-ironically, at a time when other electronic brands are fighting a turf battle with the online retailers…

It is not an entirely new strategy though. Others have tried out similar strategy. Noted among them is Nokia, which tried it out in China. It had signed a deal in December 2012 with second largest Chinese e-tailer 360buy.com (now JingDong).. whereby the latter agreed to procure 2 billion yuan ($320 million) worth of mobile phones in one year..!!

The change is already happening…The choice before the brands is between accepting it gracefully versus accepting it bitterly…Trying to stop an idea whose time has come is unfair and is against the spirit of competition…

Ultimately, it is against the interest of customers. It is like forcing metro rail services to increase their fares because private bus services are getting impacted…Why should globally respected brands be indulging in something like that …?

There is No…”One-Size-Fits-All strategy” in E-Commerce | Nielsen

As futuristic as it may once have sounded, having drones fly through the sky and deliver packaged groceries and other items to consumers’ doorsteps isn’t too far off in the future. Amazon.com is already hard at work on making this a reality, investing heavily in this technology to make same-day delivery a reality for its millions of customers. Flying drones aren’t landing tomorrow, but companies, brands and retailers are steadily devising digital strategies to meet evolving consumer needs and demands.

When it comes to U.S. consumer packaged goods (CPG), e-commerce is still in its infancy, accounting for roughly 4 percent of total CPG sales. The upshot, however, is that it’s growing at an unparalleled rate of more than 20 percent compounded annually. As companies like Amazon.com work to eliminate one of the key barriers to online shopping—having to wait for your purchase—the digital channel will capture a much larger share of sales in the future.

With increasing media fragmentation, changes in the retailing landscape and rapid growth in tablet and smartphone ownership, Nielsen expects purchase patterns to change significantly in the next 10 years. And that’s why retailers and manufacturers need to be strategic as they develop their digital platforms. In fact, believing that all digital shoppers are the same—and devising a one dimensional e-commerce strategy as a result—would be a mistake.

  

ENGAGING ALL DIGITAL SHOPPERS: 

Despite the momentous growth of e-commerce in the U.S., only 30 percent of people shop for CPG digitally. And only half of these shoppers buy consumer products online. The rest use digital methods for information, research and price comparing. Ultimately, this group largely still makes its purchases offline. Understanding a shopper’s needs both on-and-offline is critical to strengthening a business across channels.

To better understand the breadth of shopper needs, Nielsen has identified seven digital segments, each with its own unique set of attitudes and purchase behavior. The segments range from technology-averse shoppers, who only shop digitally out of necessity, to digital advocates, who believe there are more advantages to shopping and buying digitally than in an offline environment.

For instance, the “non-planners” segment—those who often dash into a store and decide what to buy once they are there—currently spend 11 percent more in drug and mass channels and 25 percent more in convenience. “non-planners” don’t yet see digital as more convenient than brick-and-mortar, but do trust the online buying process and often feel there is better assortment and more value online. As the online market continues to evolve, retailers should keep a pulse on this segment : 

”Non-planners” are open to the idea of buying digitally (they make up 15% of total digital CPG shoppers) and they could shift their perceptions and shopping patterns if convenience for online retailers can meet what they are currently getting from brick-and-mortar (e.g., same-day delivery, ease of finding and paying for products, shopping list for ease of ordering etc.).

“Non-planners” spend about the same per trip when they shop online ($30 per trip) as when they shop in brick-and-mortar locations ($33 per trip). If a retailer can appeal to this shopper segment digitally, it’s less likely that they will lose these high-value trips to an online competitor.

Since this group tends to have larger families, there might be incremental revenue potential through larger basket-sizes online…

For good reason, the digital channel is capturing the attention of consumers, manufacturers and retailers alike. It’s a channel ripe for innovation and future growth. Today, only one-fourth of online shoppers think prices are better online; one-third think product assortment is better online; and one-fourth feel shopping for CPG is more convenient online than in store.

Right now, everyone (88%) is resistant to paying for delivery. But attitudes will evolve and, with that, so will online shopping and buying behavior. Companies can position themselves for success in this evolving digital shopping world by understanding the different types of digital shoppers, knowing how they interact with their categories, brands and channels and most importantly, understanding their motivations for engaging—or not engaging—in the CPG shopping world.

This in-depth understanding of the digital shopper will allow companies to optimize their digital strategies and position themselves for future success…

“Online Retail” is the “Front & Center in Quest for Growth”| Consumer Products & Retail | A.T. Kearney

E-commerce websites are no longer just off-shoots of Retailers’ physical-stores, but valid alternatives for Global Expansion” — The 2013 Global Retail E-Commerce Index™

Today’s most successful Retailers see Global expansion as a crucial platform for growth. 

Wary of “Real-estate wars” and long ROI horizons, many have seized the online retail opportunity to overcome these challenges. Retailers everywhere are diving into online retail as consumers across the globe in both developed and developing markets go online to buy products. They are using a variety of growth strategies, from grassroots websites to acquisitions of smaller online retailers or expansion of international shipping capabilities.

A.T. Kearney unveiled the first E-Commerce Index in 2012, highlighting the top 10 developing countries for online retail investment. This year we have taken the Index one step further, ranking the top 30 countries in both developing and developed markets. The rankings are based on NINE variables, including select macroeconomic factors as well as those that examine consumer adoption of technology, shopping behaviours, infrastructure, and retail-specific activities. The Index balances current online retail market indicators with those that reveal the potential for future growth.

This study is designed to help retailers devise successful global online-retail strategies and identify market investment opportunities while understanding the trade-offs and barriers to success.

About the 2013 Global Retail E-Commerce Index :

A.T. Kearney’s Global Retail E-Commerce Index ranks the most attractive countries for online-retail on a 0-to-100-point scale. The higher the score, the more potential a country has in online-retail.

Online-retail is defined as the sale of consumer goods to the general public through websites operated by pure-play online retailers or those owned by store-based retailers. This term also includes mobile commerce sales through smart-phones OR tablets. Sales are attributed to the country where the purchase is made, not where retailers are located.

Online retail encompasses the following consumer – goods categories :

  • Apparel
  • Beauty and personal care
  • Consumer appliances
  • Consumer electronics and video games hardware
  • Do-it-yourself and gardening
  • Food and beverages
  • Home care products
  • Housewares and home furnishings
  • Media products
  • Toys and games
  • Other products 

Online market attractiveness is based on the following metrics :

  1. Online market size (40 percent) – Current online retail sales. The higher the rating the greater current online retail market size.
  2. Technology adoption and consumer behaviour (20 percent) – Indicators of online consumer behaviour, such as Internet penetration, purchasing trends, and technology adoption. The higher the rating, the more favourable a country’s consumer base is for transacting online.
  3. Infrastructure (20 percent) – Indicators of financial and logistical infrastructure development, including credit cards per household and the availability and quality of logistics providers. The higher the rating, the more conducive a country’s infrastructure is for purchasing online.
  4. Growth potential (20 percent) – Projected online retail sales growth. The higher the rating, the greater the projected rate of growth.

( Data and analyses are based on Euro-monitor, International Telecommunications Union, World Bank, and World Economic Forum databases).

The Index Findings :

The Index rankings show a combination of developed and developing markets (see figure 1). China occupies the top-spot, and the G8 countries (Japan, United States, United Kingdom, Germany, France, Canada, Russia, and Italy) all fall within the Top 15. In the middle of the rankings is a compression of scores, with only five points separating the 15th- and 30 th-ranked countries. 

Developing countries feature prominently in the Index, holding 10 of the 30 spots, including first-place China. These markets have been able to shortcut the traditional online-retail maturity curve as online-retail grows at the same time that physical-retail becomes more organized.

Consumers in these markets are fast adopting behaviours similar to those in more developed countries. For example, mobile phones per capita in Russia (1.8) and the United Arab Emirates (1.7) are much higher than many developed markets. Consumers in these countries use their phones to research products, compare prices, and seek input from their friends on social media.

The rankings include 10 “small gems”—countries with populations of less than 10 million, including Singapore, Hong Kong, Slovakia, New Zealand, Finland, United Arab Emirates, Norway, Ireland, Denmark, and Switzerland—that have active online consumers and sufficient infrastructure to support online retail.

On the other hand, India, the world’s second most populous country at 1.2 billion, does not make the Top 30, because of low Internet penetration (10 percent) and poor financial and logistical infrastructure compared to other countries.

India’s Unharnessed Online Retail Potential :

India is on many online-retailers’ radars – after all, it is the second most populous country in the world (1.2 billion people), with an online-retail market worth $1.5 billion. Yet it falls short of the Index’s rankings because of its low Internet-penetration and significant infrastructure constraints.

Increasing Internet-penetration remains the “key to unlocking India’s online-retail potential”. Only one in 10 Indians use the Internet, as many lack access to a computer and fixed broad-­band.

Mobile phone usage may bolster this rate, as more than 900 million Indians have mobile phone subscriptions, but only 10 percent of mobile subscriptions are for smart-phones. Internet-penetration may dramatically improve in the coming years as smart-phone usage increases, mobile broadband improves, and India’s government rolls out its National Optical Fibre Network plan.

India’s poor logistics and trans­portation infrastructure, particu­larly outside of tier-1 cities, makes timely delivery difficult. Planned infrastructure improvements on roads and highways in tier-2 and 3 cities, would improve the base of online consumers.

Low credit card penetration and complex tax laws also impede Indian consumers’ ability to conduct online-retail transac­tions efficiently. Cash on delivery (COD) is common in India, as only 10 percent of Indian households have a credit card.

However, many online-retailers recently halted COD payment options in Uttar Pradesh, India’s most populous state, because of operational challenges. In addition, India’s complex state and local tax laws hinder online retailers’ ability to apply accurate taxes to online orders. The planned introduction of a Goods and Services Tax (GST) is expected to mitigate tax complexity across states and improve online-retail efficiency in the future.

Despite the hurdles, India’s large population presents online retailers with a tremendous long-term opportunity,  especially as investments are made to shore up infrastructure gaps. Today, 58 % of online users make purchases, a figure that will increase as retailers are able to improve consumer conditions.

More Similar than Different ? – 

Globally over the past 5 years, online-retail has grown at a 17 % CAGR, with growth particularly strong in Latin America (27 percent) and Asia Pacific (25 percent) (see figure 2).

At first glance, online-retail in developed and developing markets appears vastly different. In developed markets, retailers with an established presence in physical stores are struggling to integrate their in-store and online channels to offer consumers a seamless shopping experience.

Retailers in developing markets, however, worry less about multi-channel integration and more about addressing the barriers to online purchasing, such as financial and logistical infrastructure and cultural norms.

However, both types of markets share many similarities, which retailers should account for as they expand their global presence online.

The “Key” Market Types :

As in any globalization strategy, there are FOUR main questions to contemplate while considering online-retail expansion and investments :

  • How big is the market ? 
  • How fast is the market growing ? 
  • How do consumers behave within the market ?
  • Is there sufficient infrastructure in place to deliver on the online customer promise ?

These answer questions by comparing online growth potential to online consumer behavior in the Global Retail E-Commerce Index’s top 30 countries. This comparison offers an insight into the primary types of online retail markets.

Plant the Seeds for Growth :

Retailers are racing to expand online, and through-out the world they are building capabilities across the Retail e-commerce value chain to meet consumer needs and customers’ desires.

The winners will recognize commonalities across markets and develop scalable online expansion strategies for local markets. As always, regardless of location, successful retailers will manage the customer experience from browsing and community interaction to purchase to delivery and return in order to maintain and gain market share.

In this fast-moving space, one thing is clear : Online-retail is front and center in the quest for growth..