 "Ticking the cross-channel box")
The use of the internet as a launch pad for product-driven companies is no passing fad. Online is a necessity today, as the growth of e-commerce changes the way we shop and how firms cater to customers. With growing focus on profitability, an omni-channel approach is also the new norm for companies characterised by online presence but cannot do without offline stores. The cross-channel approach suggests that companies have to respect both and face up to their unique challenges.
Lifestyle brand Chumbak entered the market by tapping into social media just as it was booming in India. The company, which sells products across apparel, home and accessories, was launched in 2010 with an aim to introduce to the souvenir market a set of products and designs with a dash of humour. The company founded by marketing communications professionals set up its Facebook page in 2010 and then the brand website. "Selling through these two channels was cost-friendly and helped us garner mass appeal. Based out of Bengaluru and with limited resources, going online was the best way for us to reach people across the country by using AdWords and other digital marketing methods. We kept our Facebook page fun and shared content that would interest a young audience, getting them to interact with us and giving product information," says chief executive Vivek Prabhakar.
By 2012, the company sold products through more than 100 multi-brand outlets and utilised its Facebook page to garner a following.
"Being online has many advantages for a start-up, such as the ability to target an exact audience, measure return on investment, display and share content to engage current and potential customers and get instant feedback. However, being only online can have certain limitations, as customers miss out on the touch and feel of products which increases the chances of returns, while logistical issues persist at a customer level," points out Prabhakar.
Today, the company has 16 stores in nine cities and it is working on technology in-house to develop an omni-channel offering to customers. Prabhakar feels the challenges faced by the company were not limited to being online or having a unique product offering. "We have experimented a lot with design and products over the last six years. We have come to realise that our designs are our niche but the products have mass appeal, therefore it is not limiting in terms of growth or profitability."
Fashion e-tailer Yepme is reportedly eyeing to open 400 offline stores by the year-end. Vivek Gaur, CEO, Yepme, says, "Instead of spending aggressively on acquiring consumers regularly, we have focused on acquiring high quality consumers and have built a base of loyalists by pushing a particular category and other allied categories. For a private label brand, having a base of loyal customers is more important than just acquisition," he adds.
The plan to adopt an omni-channel model is "to ensure horizontal and customised reach of the brand across India" and to meet the demand of consumers to get a touch and feel of products. Yepme uses Omni Catalyst to ensure seamless customer experience by providing same prices, offers and return policies across channels. The software provides integrated front-end and back-end solutions through a single database for omni-channel models.
Rajiv Gupta, partner and director, the Boston Consulting Group, points out that brand recognition becomes more difficult online, which is why even loss-making offline stores could be viewed as a marketing expense to drive more sales online.
Companies, however, need to be wary of cannibalisation. "You get into a franchise or distributor-led model and you have to give a percentage of your commission to them, then the product price in a retail store could be higher than online. That leads to cannibalisation, which is something you avoid by maintaining price parity or maintaining different stock keeping units online and offline," he says, adding that companies must be clear about the target segment and focus on location of offline stores.
Apparel e-tailer American Swan too had forayed into offline presence briefly, but it shut down the handful of stores it had opened in Delhi-NCR. Chief business officer Sharad Thakur says that in the offline space, the biggest challenge is managing inventory. Also, opening only a few stores in a concentrated area is not justified in the long run when as an online brand one targets the market pan-India.
With an aim of creating a niche online fashion brand targeting the age group of 22 to 30, Thakur says, American Swan's strategy is clear - keep on delivering good quality products.
With the rise of e-commerce, a reverse switch - from offline to online - is also not uncommon. Happily Unmarried, which is known for its quirky range of products, is seen as a strong emerging brand in the online space though it launched offline more than a decade ago, at a time malls were mushrooming in India. Rajat Tuli, co-founder, Happily Unmarried, says, "We were always sure that even when we go online we will not quit our offline presence. So, we look at both the channels and they are as independent. They have different challenges but both need to be present to build a brand."
Besides selling its products through its own website and marketplaces, Happily Unmarried has explored merchandising for films as well as for Delhi Daredevils in the Indian Premier League.
Angshuman Bhattacharya, consumer lead, managing director with Alvarez & Marsal, notes that the phenomenon of going offline to improve prospects with consumers was started by travel companies.
He identifies two types of rationale for offline roll-outs. "The first is that if a category requires touch and feel and comfort with customers, it makes sense to open offline stores selectively to roll out select merchandise where one can experience the product specifications and quality," he says.
The second rationale now driving offline is that in e-commerce there is a lot of pressure on the companies to turn profitable, with most of them focusing more on costs than growth. "If the brand is established, online today reaches only about 40 to 45 million customers because there are only as many online shoppers in India. But if you can make physical availability of the brand across cities, you earn incremental revenue for the same fixed costs such as advertising. So, one of the levers of turning profitable is to add to the top line by adding physical stores at the same indirect cost or fixed cost base."
Expert Take: Identify the target audience
Rajiv Gupta
There are only a certain percentage of Indians who are digitally savvy, a smaller percentage who are digitally influenced, and a much smaller percentage who buy digitally. So, depending on the product, you have to see what percentage of the market you are able to tap. If you are into a product that is catering to a digitally savvy audience, then online is justifiable. If the target audience is not digitally savvy, then just being online with whatever money you save or advertising you do is not going to make amends.
The fact is that digital is a subset of the population. So, with digital or online only, you service merely a subset. And an offline store is also a subset of the total population because it has its catchment areas which you serve. That's where your decision comes - how many offline stores, what is the catchment area, what is the target segment, how many people are digitally influenced, and what is the target segment you can achieve.
If you look at travel agents, for instance they are now completely online. You will struggle to find travel agents even in tier-II and tier-III cities. So, depending on the segment you are in and the product you have, you decide whether to go only offline or online or omni-channel.
Rajiv Gupta
Partner and director, BCG
