Anatomy of Strategy

Easy Money and the Death of Darwinism

noreply@blogger.com (Ratul) — Thu, 24 Mar 2016 13:34:00 +0000

Business must have started with innovation and grown with imitation. The first traveling salesmen or money-lenders would have probably not worried too much about the uniqueness of their idea - there was enough space for everyone to survive and thrive. Then as markets must have begun to saturate, each new shopkeeper or money-lender must have found it difficult, and must have been forced to innovate again, or move to a new unsaturated market. This cycle must have repeated a thousand times in history. And as this happened, the scale of business must have changed, with brotherhoods of craftsmen, with trade-centers, then the Industrial Revolution and most recently with the Internet.

Today the theoretical scope of most businesses is global. Information Technology, the Internet, the English language (and translation tools) and the evolution of similar cosmopolitan markets have made the spread of business easy. The availability of funds is no longer the biggest constraint. The world is indeed your playground.

So that's great, isn't it?

Well yes, obviously; and no, not so obviously. You see, in the traditional setup, there was a fair bit of rich-get-richer, but there was Darwinism as well at play. It took generations of good work for, say, a restaurant to build a reputation. In the absence of a TripAdvisor or a Zomato, when people asked around for the best restaurant, those few restaurants with reputations would get disproportionate referrals. New restaurants would really have to work hard and innovate around customer-segments, service and of-course food to make it (as) big.

What happens now is different. Any hole-in-the-wall food outlet can get the same visibility as a third-generation restaurant. The good part is that a lot of these small guys get orders, which, a decade back, they wouldn't. The bad part is, and this part is controversial, not all of them deserve your orders. Try ordering.

Some of these guys are genuine, talented folks trying to make it in the new economy. But some others are fly-by-night imitators, who know they can order from themselves and make money, use cheap oil, run a happy-hour deal and get orders, and to cut a long story short, substitute marketing for reputation. Some will even get bigger and get funded, and then start offering you 'deals' that help you decide in their favor. Others will serve a few customers, get bad feedback, and relaunch with another name. They will buy banners and come up first in searches (no offence meant, but really how many feedbacks does a typical Foodpanda outlet have, and how hard is it to buy that?), and to cut a long story short, make money, while a lot of genuine outlets will find the going tough.

Today anyone can become an eCommerce seller, a delivery outfit, a home-improvement service, a beautician or a taxi-operator. At the level of businesses, someone's money can ensure you take a shortcut to scale and get ahead of other competitors. To be clear, what it means is that if your money comes in, you'll suddenly have pole position - but of-course it doesn't mean you'll win the race - which is fair. But if the investment-led discount-madness continues even for a while, the waters get muddy.

What is not fair is when the best team folds up because they have been undercut on price, swamped out of marketing race, had their key people poached, or any other reason that has nothing to do with how good one is at delivering the value the customer wants.

Here's wishing the madness eases soon. Here's wishing a return to meritocracy. May the best team win.

Hyper Local or Local Hype? ...a look through the inventory lens

noreply@blogger.com (Ratul) — Fri, 25 Dec 2015 19:10:00 +0000

For some investors I knew, Hyper-Local was always pronounced Hype-Local since the 'r' for revenue was missing. How on earth, they say, will anyone make money just delivering stuff at no margin while overpaying delivery boys and doling out coupons? I'm sure we've all done our doomsday reading on Food-Tech, e-Grocery, Home-Improvement and Local Logistics, and probably Hyper Local too. The aim of this post isn't naming all the many startups in trouble but to figure out why.

Some people ask if the early death of such ventures is a bad thing at all. A lot of startups and investors I know are celebrating the separation of the chaff from the wheat. Many food-tech startups, for them, had no 'tech' in them. They were helping people do on an app what they used to do on a phone call, e.g. explore menu options or order food. Many on-demand local-logistics people were just overpaying drivers and under-charging merchants in the hope their inflated orders are seen as traction by their investors. Grocery, similarly, is a tough game with notoriously thin margins. It took Ocado 15 years to deliver the first year of profits. Service aggregation has its own problems that prevent every business from becoming the oft-touted Uber-of-XYZ.

So, getting back to the point, what's the deal about Hyper-Local?

Let me make a very basic point. Inventory can be classified in many ways but a useful classification is on the scarcity axis, which translates into premium chargeable. One can have the following kinds of inventory on this logic:

• not-found elsewhere including rare, private-labels and exclusive inventory

• hard-to-find or hard-to-get elsewhere

• better-priced / faster delivery than elsewhere

• commodity inventory

Most delivery startups (sorry, hyper-local is what I meant) are just playing the third or fourth bucket, with a very thin reason-to-believe that they'll transit to the first two. What that means is that customers will use a provider today as long as no premiums are charged, and the moment that changes, the customers will just delete the app and revert to their default behavior (of ordering on phone, informal credit, month-end-billing etc) as will retailers (more on an earlier article by me), and the investor will be left high-and-dry while entrepreneurs will leave with small packets of moneys paid to themselves and good credentials to get another business funded.

The last two buckets are red oceans. Even if one has an edge today, the slope will stay slippery. even if one goes directly to sub-distributors or the local wholesale market as these startups do, the advantage is a very small percentage.

Secondly, the true brand customers buy is a 'Maggi' or 'Amul Butter' (destination) and not a Grofers or Peppertap (journey). Most hyperlocal businesses are building for destination loyalty (read: apps) in a world of price-sensitive pre-planned purchases. Once users feel they're not getting a price advantage, they'll get antsy - they'll first disable notifications, and then delete the app altogether. The fact that one gets a branded carrybag from a deliveryman wearing a branded Tshirt isn't going to make anyone loyal. The fact that these guys turn up late with orders mixed up and frequently without change is just a further irritant.

The nemesis of hyperlocal isn't a supermarket or large mall or even a visit to the local kirana shop - the nemesis of hyperlocal is phone-ordering from a nearby kirana guy who knows you by name, prioritizes your order, doesn't mix up orders since he's in the trade for the last thirty years. It's a business that underpays its unorganized labor and doesn't give them T-Shirts and keeps them on their toes, that underweighs and doesn't pay all taxes and uses every trick in the trade to steal your pennies and yet make you feel great. And, remember, these businesses are strongly cash positive - so much so that they may not even know what valuation means, or even a P&L - they only understand cash.

Bottomline, the litmus test of hyperlocal in its present form shall be when the discount moneys get throttled. For then, the true-convenience buyers will remain. It will still be a sizable market, but maybe not as infinite as it is projected to be today. If there is a better source of inventory somewhere in the market, hyperlocal shall provide it consumer access. If there is better inventory that customers don't know about, hyperlocal can address that gap. Eventually, determinants of success shall include easy-to-use powerful technologies, control on product and service quality and the final challenge of jumping orbit to the first two buckets of unique or hard-to-find inventory.

[previously published in ET Retail on Dec 24, 2015]

Oxygen Toxicity and Delusions in the Startup World

noreply@blogger.com (Ratul) — Mon, 09 Nov 2015 17:30:00 +0000

As a startup consultant, I meet talented individuals all the time who aren't worried about their competition being better than them, but only about them being "better funded'' than them. I see the focus on mad scale (politically-correctly called 'traction'), losing money to get bad customers ('the acquisition cost vs. lifetime value' illogic), confusing expense with investment (the month-on-month myopia) and battling everyday problems caused by the easy-availability of money. We've all heard of too much of a good thing, and that too much oxygen kills. Of late, we have seen a spurt in articles bemoaning the damage investors are doing to the startup industry and yes, this is another one of them. I had written an earlier article that urged entrepreneurs to postpone external infusions till needed, but I realize the problem is now bigger - if you don't take that money, someone else will.

Let's look at various aspects of what's going wrong today.

1. Entrepreneurs, employees, vendors, agencies, sellers and customers are getting spoilt:

Entrepreneurs are trying to be hares that sell-off the future winnings of their race before the tortoises catch up. They also feel flying business class to attend conferences in the Silicon Valley is the most important action point.

Employees think the company pays them to make glorified mistakes and learn (to glorify them better next time). They feel justified telling others they quit because the company didn't invest enough / wasn't aggressive enough.

Agencies pitch ideas that make for great insightful investor-relations' decks, and have a flimsy chance at best of ever being executed.

Sellers think the (funded) business has to compensate them for their own faults.

Customers feel they deserve a 110% discount, plus 90% cashback and no-questions-asked returns with a coupon for their next purchase. The threat to post on facebook gets them an additional birthright coupon.

And everyone's in on the party. Stones and mangoes are getting delivered, parts are being replaced, fake notes are being paid with, and so on - you get the point.

2. Everyone's trying to run faster than the tiger:

No one's asked for a one-hour delivery, but companies want to build that. Now they want to build one-hour returns too. All being equal, faster is better - but if this costs 10X normal delivery, we customers prefer the cash discount.

Well yes, we used to like bubble-wrap, but now we have enough. Don't keep sending us 5-inch scratch-guards in a 5-liter boxes full of air.

Businesses are really discounting more than needed. If the rate for in-city logistics is INR 50 / Km, 'aggressive' businesses are now starting their pitch with INR 25 / Km. Yes, they manage to discourage others - but only to accelerate their own eventual troubles.

3. Expenses are winning over Investments:

Companies talk of customer acquisition costs as if customers can be acquired; as if they'll stay on when the huge discounts go away. We all know what happened when email providers tried charging for services. The same, no surprise, will happen to the latest Unicorns too when they charge real money.

We are customers. We know we won't stick around when the fair's over. Investors should also know this. Market share today isn't equal to, or even related to, market share tomorrow.

But you know, the most dangerous of all implications, the one that may be most destructive for us once the funding boom-times are over, is that

4. Untrue truths are being taught

Money is never the bottleneck

Ideas are commodity, what is important is to scale fast

It is okay to fail - you learn more when you fail, plan to fail fast and pivot

You are in the business of creating value - not buying and selling

Build GMV, profits will follow

Customers acquired through freebies will repeat organically

Real-estate on the mobile is expensive and has to be paid for

...and so on. One could go on in such Unicorny Lingo forever.

The fear is that when the party's over, and it's time to wake up and smell the coffee, some of today's whizkids may wake up with a permanently distorted view of reality.

Originally published in ET Retail on November 9th, 2015

The frenemy question for Google, Facebook and others

noreply@blogger.com (Ratul) — Thu, 15 Oct 2015 10:55:00 +0000

The internet is rife with talks of Facebook and Google entering eCommerce. While they have both dabbled with the idea of doing stuff on their own through Google-Shopping or Facebook Virtual-Goods, they seem to be going the 'buy-button' route. What this means is that they, and their advertiser-eCommerce businesses, will need to face the Frenemy Question.

Both these companies learn and earn a lot from eCommerce, where they're risking a change of position from partner to competition by going deeper into the purchasing funnel. eCom businesses on the other hand depend a lot on Google and Facebook for their traffic and app-downloads. Once the app is installed, these two aren't that important, but just given the existing eCom penetrations (let's say sub-1% in India to a maximum of 6-7% in large developed markets and just-maybe a couple of exception-markets at 10%), the task of bringing new people online will remain important for a long time. That means Google and Facebook have a huge role to play even in the app-only world that some eCom businesses are trying to morph to.

Now Google and Facebook are just the biggest examples, but we know every other business from Pinterest to Twitter to WeChat is in some way considering getting into the eCommerce play if they aren't already in. Last year in India saw everyone from Gati and HDFC and Airtel and PayTm all announce plans to get into eCommerce. Unconfirmed reports surfaced about anyone and everyone - from payment companies to wallets to logistics to large retailers to brands to distributors all trying to create their own eCommerce destinations.

The moot question is why - is it just for the valuation multiples? Or is it a genuine belief in being able to make a positive difference in the way it's done today?

And the other question is if the role that these companies are trying to play as end-to-end eCommerce providers creating more value than the role they play today?

Let's consider this, a typical company here is a platform

• that multiple eCommerce businesses plug into,
• that everyone's customers share data with,
• that sits in the "revenue-positive" (read 'money-making') part of the value chain,
• that has its risks spread wider than the success of any one business it services

And now it's moving to a situation

• that is far away from making money today (apologies for the generalization, but I'm sure you get the point)
• that is a task of creating unfamiliar competencies
• that is a high-risk grow-big-or-go-home space today,
• has irrational hyper-competition

...and so on.

To make it worse, it's an either / or decision. It is difficult to be a service provider in an industry one competes in oneself. And this may be a big difference between a Google and a logistics provider. Most eCommerce sites, which have money to spend, may not have an alternative but to spend money on Google - they might just get a bit cagey about what they share, but they'll have a choice of moving completely away from a logistics player who they perceive as a threat. And that's a big aspect to consider.

In the end, the point is that this decision to encroach on your customers should be led by more than the prevailing multiples. It should be a function of your bargaining power, your eCommerce skills and insights, and most importantly, your ability to forsake the part of your existing revenue and trust that may go away - forever.

Published in ET Retail on October 8, 2015

Knowing If, When and How to use NPS

noreply@blogger.com (Ratul) — Sat, 05 Sep 2015 06:32:00 +0000

If you run a business, I’m sure you measure lead indicators like customer-satisfaction, intention to repeat, net-promoter-scores and so on. A good question to ask when you are setting up these metrics is, are you measuring the right metric. To be clear, this is not one of those NPS-bashing articles - there’s enough criticism of every model including NPS but that’s a separate topic for another time. The question, for now, is whether measuring NPS adds value to your business - assuming the model delivers what it promises.

Well, it truly depends on what makes the business grow. If you are in an eCommerce-in-India situation now, measuring customer NPS is a great idea only if promotion or word-of-mouth is indeed the main source of new buyers. If more people are coming through SEO / SEM or the pull created by TVCs, one should measure those metrics instead. Measuring seller-NPS, though a common practice, is to my mind useless if not harmful, because if sellers start having a great sales or experiences on a platform, they don’t necessarily want more sellers to come and join the party. Most new sellers don’t come to a platform through recommendations from other sellers.

• Do you want to grow the business? Sometimes companies keep measuring NPS for categories in intentional decline. Needless to say, it’s a waste of resources.

• Does the business grow primarily through buyer-growth? If building repeats is the idea, just ask customers how likely they are to repeat. Do not ask them how likely they are to promote your brand to others. Wrong questions give you wrong answers.

• Do new buyers come primarily through recommendations? If your buyers are coming through search or ATL-awareness, then NPS isn’t your biggest worry.

• Are you looking to measure business health? Then you should ask more relevant pointed questions rather than an overall question.

• Is NPS valid for you? I mean, if you do believe customer growth is key for market-share growth, and also that new customers come through promotion by existing customers, do you see correlations in the past data of NPS and market-share? If you don’t - there’s a big problem. You need to check for correlations and causality with other metrics and see if you need to change your reasoning itself.

One final word of caution. NPS is indicative and directional. It is used only because it is a consistent and comparable way of looking at net promotion. For any real insight to come through, you will need to deep-dive into possible reasons for promotion, detraction or even staying passive. And then when you have these insights, you’ll have to close the loop through follow-up actions, the effectiveness of which can be measured through your next NPS survey. To cut it short, unless you have the intent, bandwidth and resources to do the deep-dives and follow-ups, measuring NPS in isolation will just tell you if you’re doing well or not, but not why or how to improve. And that, to my mind, is a complete waste.

Is it time for Rural-First eCommerce?

noreply@blogger.com (Ratul) — Fri, 31 Jul 2015 15:49:00 +0000

Are we trying to sell English-Language classes through ads printed in English? The funny bit is, if you look around you'll find a lot of language institutes trying to do just that. It isn't just funny, it's a sad waste as well. And that brings us to our burning question. Is it time for rural-first eCommerce?

A lot of critical determinants of an eCommerce model vary between urban and rural markets. Customer evolution, internet speeds, language proficiency, retail expectations, buyer-seller-distance, supply-chain infrastructure - to name a few - vary between urban and rural areas. Hence the obvious fact that rural and urban eCommerce may need different approaches.

I'm not speaking of inventory itself - that's relatively simpler. We already know rural customers may have a stronger preference for battery life and ruggedness with respect to heat, humidity, dust and power-quality. We also know regional brands and designs may have a higher acceptance. I'm also not talking of translation or even of the different expectations (and realities) on delivery time, customer-care etc. I'm speaking of stuff that's tougher to pin down.

There is the complexity around color, font, language, dialect, idioms, syntax, imagery and visual design. If you ask typical rural populations in India, you might find they prefer the orange-colored Micromax phone with the loudest ringtone to the Vertu, and the Su-Kam inverter print-ad to the understated Apple ad. If you want to know what works for rural, look at the posters political parties make. They may not be the most elegant works of art for you and me, but they work for the rural masses- and much better than a Benetton hoarding.
And then it gets more interesting.

Rural isn't 'one' market. Urban, interestingly, may well be - most large cities turn cosmopolitan and while they do retain a bit of local flavor, urban markets tend to be more homogenous than rural markets. Each rural market may have its own unique idiosyncrasies. There is some media commonality so one may expect similar demand-trends, but the regional influences could be stronger than global cosmo ones. In the colorful south of India, people may prefer pristine whites while in the bleak Thar or Rann of Kutch, the preference may be for mirror work and applique in rich colors. Spending could me more linked to the 'actual ' harvest than the harvest festival as per the calendar. The differences by religion, caste and occupation could be more pronounced. Matriarchal and patriarchal societies could respond to different communication.

Now imagine one business that starts of by adapting its global platform and processes, and another that starts from a region, say the North-East of India - the more local business could well be better-suited for local success. Its challenge would be scale. The global business may have better scale, but if it doesn't resonate with the customer, it'll have a tough time succeeding. The business is not about - crudely put - discounting mobile-phones, wrapping them in miles of bubble-wrap and Fed-Exing them. The challenges could include the following:

The translation challenge: from today, when everything from the website name to search-experiences and item-details are in English, how do we go to being easily understood by populations who may understand English less or differently - the answer may either lie in language adaption or in language-independence (visual / audio web etc)
The custom-experience challenge: from uniform all-India prices, promises and T&Cs, how do we vary our promise of the best-possible for each taluk or tehsil, and how do we deliver, say, local language customer-support from a centralized location, how we get the items there and the cash back; also the business may need different measurement-norms on COD%, return-rates and so on
The inventory challenge: how do we get to the portfolio that is closer to actual consumption
The hand-holding challenge: how do we get people comfortable with the idea of digital commerce, where the initial levels of exposure, DIY and comfort with change vary from urban populace

The long-term game is about creating local or language-independent experiences, generating custom prices, delivery times and T&Cs on the fly, selling sattu, gamchas, lanterns and fertilizers, building financing, supply-chains and reverse supply-chains, getting customer-care to talk in the dialect and so on - while still aiming for economies of scale. A lot has become easier with soft keypads on touch-phones, transliteration and translation tools etc, but a lot more needs to be done. The big promise is that once these engines are built, they may well end-up being applied to urban niches as well.

A lot of this will remind you of the mass-customization paradigm. It is simple, but not easy.

The way ahead may be complex, but is certainly interesting. More than economic potential, it has the promise of separating the innovators from the me-too's, the talkers from the doers, the wheat from chaff - much more than the comparatively-less-complex urban eCommerce.

Previously published in ET Retail on July 29, 2015

The Changing World of a Shopkeeper

noreply@blogger.com (Ratul) — Fri, 10 Jul 2015 07:54:00 +0000

All of you have followed the developments around eCommerce, local commerce, daily-deals etc. as businesses. All these businesses to some or the other degree depend on the traditional shopkeeper as the supply source. eTail is probably the model that depends on him least, because it can go directly to the source, the manufacturer or the large distributor, but it still needs shopkeepers in some categories where the aggregation of demand, like in auto-accessories, happens at the shop-level. Or when one needs services like installation that the shopkeeper can provide. For local commerce, the shopkeeper is the backbone, as it is for many businesses for daily-deals.

Truth be told, most traditional shopkeepers think of themselves as being in the business of moving boxes and managing cash. They haven't really thought of themselves as entities for digitizing supply, taking pictures and writing product descriptions. They also don't think of themselves as being in the business of delivering goods, though most of them do it for some percentage of their orders. Most of them don't have MIS or ERP systems and they manage inventory through heuristics. They don't know how to manage feedback on digital platforms. There are therefore significant challenges in them making the transition to the supplier digital businesses will look for. And it's a lot more.

A traditional shopkeeper may make his money in fairly unstructured ways. He would buy in bulk on credit or against a cash discount for volumes he has back-of-envelope (or back-of-hand) calculations for. He can then weigh goods approximately (erring on the side of less sometimes), pack it in an old newspaper, have it delivered through a person who may be below legal age or statutory salary, do pure cash transactions where he does not provide a receipt or pay taxes, or through credit where he has some leeway on the month-end calculation, and so on and forth. One is not saying adulteration or substituting lower-grade loose commodities is a norm but that too is possible. Each one of these activities adds up to margin. The result is a profitable business that loses value once it gets 'organized'.

And that is where a big problem exists.

Today digital businesses are not only expecting this person to agree to tax scrutiny or accept credit cards, or to install a POS software and MIS, but - what is more important to keep in mind - we're also expecting behavior change, which, as all of us know, isn't easy. A shopkeeper today may be happy getting 5% additional sales through local commerce, but one day he may not deliver his order and not even be apologetic about it because in his earlier world, it was okay to tell the customer he forgot, or his delivery boy came back late from lunch, or that the electricity went off, or the bicycle had a flat tyre.

Online businesses are in the business of structuring this market, of making promises that are kept and of assuring quality and timelines. We must remember the chain is as strong as the weakest link. If we create a middle-layer that will cover-up for what may go wrong, we risk becoming a different business - one that carries inventory of its own, has its own delivery, answers queries on behalf of shopkeepers and resolves problems on behalf of customers and eventually costs more than the efficiency we are seeking to create. So that not being a sustainable option, the other workable solutions involve handholding, education and behavior change.

And that takes a while. When we set up companies that depend on the shopkeeper keeping his promise, this is something we should keep in mind.

[note, this has been previously published in ET-Retail on July 1, 2015]

When Money is bad for Business...

noreply@blogger.com (Ratul) — Wed, 03 Jun 2015 06:59:00 +0000

All of us know money is a great friend in need when it comes to business. The whole investor business stems from the insight that money is no longer the scarce resource it used to be, and the infusion of external money into a business can accelerate a business many times more than the organic reinvestment of profits can. Imagine a unit-profitable business growing as a straight line from year to year - spending more money than the business has earned can bring the EBIT line down below zero for a period, but then it reemerges a few years later much higher than the straight line did. So far so good, so what's the twist in the tale?

There’s another angle to money, which is not so nice. There’s a reason many parents aren’t giving their children easy money (Bill Gates too, you’d know). Money can make one lazy (e.g. I'll get to work but let me recharge my batteries first), but more seriously, could cause delusions (e.g. I’m popular because I’m charming and not because I’m rich). Similarly in business, having more money than you need can destroy you. Let me illustrate how.

Let’s say you’re running an eCommerce business today in India. Let’s assume the low prices on your portal are partly due to the efficiencies of your model (good sourcing, no inventory, bulk-breaking, private-labels etc) and partly due to discounts on top funded by the business (marketing discounts, signup benefits, app-download incentives, site-wide discounts, co-funded cashbacks and so on). There are no points for guessing which of the two is more difficult to achieve. Now what happens in a cash-rich company is that the first approach is simply considered a waste of precious time that could instead be spent on multiplying the GMV numbers through, to put it crudely, bribing customers to buy.

In other words, the availability of money will drown the intelligence and effort your employees and partners invest, which bad news. The other issue, which is also non-trivial, is that businesses that live through hard times gain a lot of resilience, efficiency and humility. Hard times are as necessary for these learnings as sunlight is for the production of vitamin-D. Just because the investor market has been good yesterday and today doesn't mean you don't create a shock-proof business.

The last bit is about rich businesses who say they run themselves as if they are poor - it's a really difficult thing to do - it's like dieting with a fridge-full of goodies. If you have smart employees, they know how much is in the bank, so towing a hard line will just lead to lack of trust.

What is easier, and much better, is to go the old-fashioned way. Postpone the flood of money. You know your industry dynamics, so do what you have to, but whenever possible, ensure money is raised and used as late as possible (which will also reduce dilution of ownership to a minimum). Try raising and using money for investments (like building a better product, or fulfillment-infrastructure) rather than expenditure (like spending on discounts), and try valuing the "build-for-tomorrow" people in your organizations, the "don't-spend-everything-today" people in your organization who are getting less heard each day.

Initially published in ET Retail on April 29, 2015

Does every business need a Mobile App?

noreply@blogger.com (Ratul) — Tue, 26 May 2015 07:25:00 +0000

As we all know, the news is full of terms like ‘mobile-first’, ’mobile-only’, ’app-only’ and so on. Most websites one lands on are either recommending you download their app, or in some cases pushing the app. If players like Myntra and Flipkart are going app-only, if PayTM wants to do mobile-only Commerce, and if everyone else from Amazon to Ola to Uber are offering you app-only offers and discounts apart from a big incentive to download the app. Every other advertisement on the television, from Freecharge to Foodpanda, just talks of the app. It clearly looks like big-business. But is the app the only way to go?

If we can shut out the marketing noise, there’s another way to look at this - which is probably the best way to look at it. That is to put ourselves in the shoes of the consumer. Here are a few questions we should ask ourselves before jumping into the mosh pit.

• Are most of your buyers new or old to the category and your site, its promise and experience? If you’re expecting new users to download an app just to try your experience, you are expecting a lot. Once the user finds consistent repeat value in your offering, then and only then would an app be considered. I’m not talking of the case when you are paying the user a huge amount in coupons or free-rides to install an app - that’s a different discussion for later.

• Trivial point, but do most of your present and potential users have access to enough data bandwidth to download and upgrade the app as required?

• Are most of your present and future consumers use the smartphone to purchase your product or service?(note I’m not saying have a smartphone because, broadly speaking, everyone will) If the user is looking to compare tech-specs of four speaker-systems, or insurance products, is he likely to do that on the mobile screen? If your service is a research-led choice, is the mobile screen even big enough for that decision to be made? Do remember mobile customers are fickle and disturbed by calls, SMSes and chats, are frequently on the move, have varying bandwidth, and so on. So do some data analysis on existing users, and some research on potential ones.

• Does your category have the repeat-rate that demands an app? If you are a taxi provider, yes. If you’re an insurance provider, no. If you’re into real-estate, then prepare to be spend a lot to convince people the app is a better choice than web, and prepare to be uninstalled the moment the decision is made. Please don’t expect the consumer to install and maintain and not delete an app that is used once a year, or once in a lifetime - like a wedding-planner-app.

• Is your category search dependent? If all journeys start with a Google search, it may be more important to have updated web-pages for Google to index.

• Sad-but true - real-estate or screen space on the phone is quite limited. It does not allow for too many apps - apps of lesser relevance will be deleted. So do ask yourself if your app could be in the top-10 engaging and relevant apps for your target-group across all the other apps he may have installed. If you’re an mCommerce player and you feel you have the most engaging app, it may not still be enough. Do ask if you can compete with Whatsapp and Facebook for real-estate.

• Do ask if you’re going app-only because it’s cool. If you think push-notifications will change your life, or geolocation will, or just that the consumer can refresh the page by shaking his phone - do ask consumers first how much they value these features. Do remember the Segway was cool, so was the Concorde. Both can’t be called successful by any shot. Of-course, your slick site navigation is best experienced on a native app, but does the customer make his purchase decision based on site navigation? Or is it something else, like better supply or prices? Wouldn’t you rather invest in the key drivers of his decision?

• Finally, do check with industry experts if your reasoning is on the app business is correct. The app is not simply permanent freedom from having to pay Google. It takes money to build and maintain, more money to market your way to install, app-store-rankings, feedbacks and so on. Discoverability of new unmarketed apps is limited to truly unique and extremely useful apps. If you pay for an install, to complete the loop in the first point, you could just be offering a free-ride before an uninstall happens.

Do remember the PC-web could be boring, but it’ll stay as long as laptops are selling, as long as offices are operating, as long as smartphones have small screens and tedious ways of typing long text, including 16-digit credit card numbers. If you think you can circumvent Google by an app, do remember it’s the Android app-store rankings that’ll make the app sell. You’ll still need to spend on installs and usage, so it’s just replacing a problem with another. Nothing in life, including an app-install, is permanent. The battle is never over.

So what should you do in the meantime? The best thing to do could be to gather usage and preference data from your present and potential consumers. If the mobile looks like a promising area of investment, check if a mobile site, or a responsive site serves the purpose. Then if the answers to the questions above convincingly point towards an app, the subsequent step would be to seed an app, but not go off web or mobile web.

To sum it up, do remember good Strategy is sometimes about saying no to obvious choices when they don’t make sense for you. It is also about not following the crowd and sometimes about choosing the non-fancy traditional option. If you choose to build an app, it has to fit your users and your category. If you choose not to concentrate on the web or the mobile web, then it’s more dangerous. If you choose to forego avenues of growth where most of your users are today, you’d do that at your own peril, and to the benefit of all your competitors.

Ps: The internet has long-arrived, and the TV still isn't dead. Neither is print, by-the-way.

Initially published in ET Retail on April 29, 2015
Related post: Is it Wise to go Mobile-Only?, March 8, 2015

The pitfalls of free-shipping

noreply@blogger.com (Ratul) — Mon, 18 May 2015 09:53:00 +0000

Every eCommerce blog in the world will sing paeans in favour of free-shipping. It does make decision-making easier for consumers on one hand, and on the other, it does have a cost. There is no such thing as ‘free’ shipping, first-of-all. It is being paid by the consumer in many cases as the cost gets bundled into the product price, or it is being absorbed as a marketing cost by the seller or the platform.

That said, let’s take a look at how free shipping is being implemented today. A seller from, let’s say Gurgaon, is instructed by marketplaces to list articles on free-shipping, so they work out an average cost of reaching out to potential customers, wherever they might be, and add it to the product price they want - not knowing where the buyer might be. This seller could end up with a consumer who lives next door in Delhi but alas, thanks to free-shipping, the buyer has to pay the average all-India price. The seller could be, for all we know, using a worst-case-price - so the Delhi buyer is either paying the Kanyakumari shipping price, or worse and more likely, not converting.

Try this the next time you travel - do prices on your favourite eCommerce site look different whether you are checking them from Mumbai or Bangalore? Try feeding in your PIN-code, and all you’ll know is if COD is available to you - the price of the article won’t change for you. You know why? Of-course you do. It’s again thanks to the glory of free shipping. eCommerce platforms have so far steered clear of optimising the shipping cost for the seller-buyer PIN-code pair. Why bother optimising something that’s free, right?

Wrong. Like we said before, there’s no such thing as a free lunch - sorry, shipping.

This current business of flying pen-drives and sunglasses across the country is not sustainable. This was fine if Indian eCommerce were on the retail model and thus, free to ship from the nearest location, but today most Indian players, for regulatory purposes at least, are marketplaces. Most eCommerce sites are thus making the buyer select the seller along with the product on a buy-now button. What the buyer wants to select is price and shipping time. There is, therefore, a huge need-gap that needs a solve. In most cases, buyers are getting their products more expensive, and much later than possible.

How it should work is simple. The sellers should be asked to input the price they want for their article, and a logistics solutions provider (LSP) that the eCommerce platform works with should be asked, on-the-fly, to provide the price and delivery-time given the pick-up and delivery PIN-Codes. Sure, if you want things simple for the buyer, by-all-means show a single price that’s the sum of the product and shipping price. What happens as a result is:

• the price shown is more accurate, and fairer to the seller, shipper and buyer
• items closer to be buyer are automatically prioritised (wether sorted by price or time-to-deliver)
• shipping distances are automatically reduced
• prices for the same article are different in different cities, which is how it really is if one were to remove price distortions
• every loss that’s a function of transport time e.g. shrinkage or loss in transit, transit-damages etc. get reduced

End-result is that buyers get their products not just cheaper, but also faster and in a better condition.

We must remember that eCommerce adds value by providing a wider selection and more convenience. Shipping across unnecessary distances, adding costs, delays and damages are not consumer benefits but costs. When the current heavy-discounting regime falls, customers will see that the emperor is not wearing any clothes. That, will be an uncomfortable day, and a heavy price to pay - for free shipping.

Previously published here.

Is it wise for eCommerce to go Mobile-Only?

noreply@blogger.com (Ratul) — Sun, 08 Mar 2015 10:40:00 +0000

After PayTM’s mobile-only launch, Myntra, and reportedly Flipkart is going mobile-only. While there is no debate wether it makes sense to build mobile web / apps, does it make sense to forego the PC experience, and in time the mobile-web experience? That is a tougher question to answer.

It is certainly a brave decision. The future is mobile. Some claim the future is apps and no m-web. There could be some truth there, but the real question would be on the benefits of going off the PC/mobile-web completely. Let’s take the PC-web question first.

Focus could be a key point gained. There’s significant upkeep one could avoid, but the PC experience is already build for most players, and is easier to build if not. The PC experience does have advantages - much more decision-information on one screen, an experience users are used to and so on - and there may actually be a segment of users used to the PC experience who is not used to the mobile experience. On the other hand on mobile there are significant unknowns - it’s something that is evolving as we speak. But that said and done, mobile is a significant portion of the eCommerce future. But it is not 100% by any projection.

And again, the same question - would it be wise to discount the benefits of the PC-web? Is there something inherently distracting or destructive about maintaining the PC experience? One could always build a responsive experience where one has a shop-front for every access-point. The engineering doesn’t need to be different - and while smartphone numbers beat the PC numbers by a mile, those aren’t population numbers, just ship-outs. I haven’t seen the Comscore numbers for mobile-access since very few Indian eCommerce sites are covered or unified, but I believe the page-view and minute numbers would be much lower than the 50-90% traffic claimed by most eCommerce sites - this percentage is most probably the visit percentage. And we know how GMVs are not that closely linked to just visits.

Arguably, the quality of experience on a PC still beats the mobile today. There are enough pointers to lower conversion on mobile - smaller screens, more impulse less mission mindsets on an average, reluctance to use complex payment schema (read non-COD), a fresher TG and so on.

The worst reason to go mobile-only I heard recently was that app-downloads increase when a website goes down - does that even sound like a long-term strategy? It’ll only be a spike - we all know it’s about being most easily accessible across all channels for existing and new users - that’s religion unless you have a reason better than those above. More app installs is a nice metric, but one has to watch the cost at which that comes. If your cost per install is already way higher than the user’s lifetime value, the last thing you’d want to do is add the cost of lost-GMV to it - GMV lost-to-competition to be precise.

It gets worse. Some players in the Industry today don’t want to fire their engineering or product resources. They just want these people who were hired and trained for the PC-web front-end to start creating apps. Not fair or productive, I’d say.

There’s even more. The advertising story is less effective on the mobile-app. If a business wants to make money from space-selling like Alibaba does, the mobile just offers no real-estate for it. On the PC screen one can cover even three-fourths of the screen and still have enough space left to showcase the item to be sold.

One could argue that while it is okay to reduce or even stop the investments on PC-web, it could be foolish or even dangerous to discount it as a past that has completely ceased to exist. I believe the comfortable-with-PC shoppers will take a bit of time to change and may not like the fact that their favourite website isn’t asking for their opinion or offering a bridge to the future. What will happen, in my opinion, is that affiliate websites will have a party once they are the only route to the inventory on the PC-web. And we all know that’s 5-10% more expensive a sale.

Is it wise to put all your eggs in either basket is the question. Is it wise to forego an established paradigm and exit the field in favour of competition while taking a bet on the (almost) entirely unknown is the question. What do you feel?

Sub-Segmenting Cash-on-Delivery

noreply@blogger.com (Ratul) — Sat, 28 Feb 2015 11:22:00 +0000

I’m sure we must have all read enough about the immense COD business in India. Estimates of this market’s size vary between 50% to 70% of the entire eCommerce opportunity in India. Interestingly enough, I’ve seen many businesses talk of this segment as just One segment. How can two-thirds of your market be just one segment? It seems natural to peel layers here. There could be various gaps and opportunities to be unearthed if we stop seeing this entire COD opportunity as one market, with similar consumers, needs & wants, drivers & barriers etc.

India is supposed to be amongst the most cash-intensive economies in the world. India has more than twice the number of bank notes in circulation compared to the US, at a fraction of the GDP. The bank-notes to GDP ratio stands at 13% - which for most countries is 2.5-8%, and this proportion is rising in India.

Too add further perspective, India has also not had a history in catalog shopping. Far from it, India’s traditional retail has been next-door. Most commodities were bought on touch-and-feel - the current pre-weighed flour and pulses is a very recent and marginal phenomenon, and paid-for after a month’s free credit. Banks have always ‘rewarded' savings with sub-inflation interest rates. Tax avoidance has been, and is, common. Retailers commonly charge more for card transactions over cash. Just the amount of India’s black-money stashed abroad runs into billions. There’s more stored in real-estate, gold and sometimes just wads of notes buried underground. The phenomenon is bigger than the broad cash-for-convenience label that’s put on it.

Specifically for eCommerce, I think there are various subsegments including, but not limited to, the following:

offline buyers: These are genuinely financially-disconnected buyers who do not have access to instruments needed for online transactions - they may have internet access but not online banking, credit or debit cards, or digital wallets.
cash economy buyers: There are people who earn and store money in cash, and for whom a digital transaction involves first depositing cash into an account.
convenience-led buyers: The most-well known segment perhaps, but to note, there are two key sub-segments here. For these buyers, either the use of cash, OR the process of cash-payment is convenient. COD is often if not always a faster transaction with lesser steps. The trade-off on convenience is of-course that (some)one has to be present at the time of delivery, which is inconvenient to some, but everyone defines convenience differently. Particularly of note is the case of the mobile buyer, who finds it hard to input 16 digits, sometimes twice, then the CVV, then exit the app and go to his SMS inbox for the OTP, then come back and complete the transaction- often on a small screen and sketchy bandwidth. COD is a single-click option in comparison.
trust-deficit buyers: These are people trying out a platform that they’re not sure about. Maybe they don’t trust the product that they are buying, or the service that the platform will deliver. Once it’s delivered properly, and the packet is opened, they feel comfortable paying.
post-paid buyers: These are people who simply prefer paying after. Simple. These could technically do a card-on-delivery transaction as well if incentivised to. Unlike the trust-deficit buyers who won’t pre-pay for a specific reason, these buyers are on a default setting of post-paying. They need a strong reason to even consider pre-paying.
impulse-buyers: These are buyers who are not sure if they want to buy the product. They often click on buy, sometimes to check the final price, and they don’t take it seriously enough to cancel the transaction (for them refusal of delivery is as good as cancelling the transaction. The subsets of people ordering expensive things for ‘fun’, or to try out the experience belong here
remorse-affected-buyers: Let’s be real. Many a buyer continue their price-research even after their purchase is done. More often than not, a buyer either discovers a cheaper source or worse, the price of the same article on the same website drops. It is tough to feel like a fool. It is easier to order post-paid COD so that one retains the right of refusal, and the bargaining power.

Naturally, all these segments are similar symptoms of different diseases with different treatments. If one wants to expand or reduce or even understand the COD phenomenon, one needs a finer lens.

What do you think?

Strategy and the Plight of What-Doesn't-Look-Good

noreply@blogger.com (Ratul) — Mon, 01 Dec 2014 09:16:00 +0000

What is the toughest choice to make in Strategy? Well, it's a certain type of tough question - not one you draw a blank on, but one where too many answers come to mind. Is it about challenging the value-system? Or convincing an organization that it is not 'strategy-ready' yet? The 'toughest', finally, is a subjective one, and my pick may easily be different from yours. In my present frame of mind, I think one kind of the toughest choice is to pick options that don't 'look' good.

I'm sure you'll agree that at times the best choice is to do nothing. At times, it is to close down a business, or to wait out a storm, or to walk away from an opportunity - and so on, right? But now imagine actually sitting in one of these day-long workshops and when the time comes to condense choices, it is one of these. It'll take a brave CXO, or a group of leaders, to conclude that it is best to do one of these things (or nothings, to be precise). It is much easier to say you'll reinvent yourselves, or acquire some as-yet unidentified target or any other equally esoteric statement, but it's really tough to say, for instance, that you'll wait it out and do nothing for now; or that you seem to be in a good place and it won't be wise to rock the boat. Examples of such not-good-looking choices abound. I'm not hung up about the examples above, but you get the drift.... There's a huge stack on the other side, of words that may not mean much, like re-organization, reshuffling, re-prioritization, deep-diving, outside-in propositioning that may also not mean much more, but sound much better.

Another interesting insight is that it is easier to say we'll do nothing when times are bad, in the 'all hands on deck', belt-tightening, no-nonsense struggle to stay afloat. It gets tough when all this becomes 'business as usual', and there's enough time to ask what-else and what-if.

And then you see the plight in action. You get in and out of strategy workshops that are like, as someone said, a Chinese dinner that makes you feel quite full for an hour, but then you wonder if you have eaten at all. You'd often find leaders scrambling to avoid the plight of the non-good-sounding, for race to find the perfect words to say nothing.

Sad, isn't it?

Why a Rare Single Malt is a sign of Success, (as is the Marshmallow)

noreply@blogger.com (Ratul) — Wed, 12 Nov 2014 11:41:00 +0000

To start with, the the idea spawned in many-an-advertisement, of single malt being a sign of success, or successful people, looks ridiculous. That bottle can signify success as another cola bottle signifies happiness. But then in the course of a recent conversation, I happened to think more about why some whiskeys are expensive.

Expensive whiskeys, by-and-large, are expensive because they are old. Distilleries keep aside stock and age it over long years in oak barrels, and then connoisseurs and collectors buy these whiskeys and carefully store them for more long years (though they say that the taste doesn't improve on storing once bottled, it still gets rarer). All the dollar value the whiskey accumulates, on other words, is because it is not sold in the first year by the distillery and it is not drunk by the collector. And because it is not over-produced. The world's best whiskey it seems, is the Japanese Yamazaki. Just 18,000 bottles of the winning Yamazaki Single Malt Sherry Cask 2013 exist. Now if the whiskey is supposed to be that good, it'll take a lot of self-control for it to get old and not sold, and more for it not to be drunk. Incidentally, this was exactly what they tested in the marshmallow test.

I'm sure you've heard about the Stanford Marshmallow Test, and in case you haven't, do read up on it. It seems researchers gave a marshmallow to children who had a choice of eating it immediately or waiting, in which case they got another marshmallow. The few children who could control and resist temptation went on to become successful people. The core variable is deferred / delayed gratification. If we substitute these children with distilleries and collectors, you can imagine how the logic can hold.

Can you not kill your golden goose too soon, uproot your plants to check if they have grown, not spend your money just on traffic and advertising but build a better product, spend time on planning the next year versus this quarter, hold your card and not throw it at first chance, resist the party invitation the night before exams? It's probably the same question asked in different ways.

Now can you resist drinking the Single Malt - provided you are successful enough to be rich enough to buy it in the first place ;-)

What is, really, the "Best"?

noreply@blogger.com (Ratul) — Fri, 07 Nov 2014 05:27:00 +0000

Most of the world around - people, products, organizations, nations, what-have-you - everyone and everything is trying to be the best. It seems inane trying to define what the the best can mean. Do try defining it one of those poker nights - I'm promising you it won't be easy. Most of us know that this definition bit would be quite a painful and possibly pointless exercise. Now the curiosity point - when we spend so much of our energy trying to be the Best, won't it be worthwhile thinking about what it means?

Just to get you going, let me throw in a couple of colors on the palette. Is there an idea of two different 'Bests', from two viewpoints, e.g. the buyer and the seller? The best thing to buy (and therefore the best product to create?) could be, let's say, a reusable diaper. Once soiled, it goes for a wash and a dry and it's all ready to be used again. From the seller's viewpoint, this product could be a disaster. You are converting a stream of expensive purchases into one single purchase. Now who spends resources creating products - the customer or the company? The company, or the seller, has a different best - one diaper that has some sustainable claim justifying a higher price than the one currently selling.

On the same thread of baby-products - can the best be too good for its own good? The feeding bottle is frowned upon because it makes it so easy for the baby to have milk that the baby will stop suckling. Can one formula feed be so tasty that babies refuse to have anything else? Tasty snacks are one kind of best, another kind of worst. Invasive species of plants could be another example - weeds a more common example. The Asian Carp in American lakes is yet another example and crows taking over cities from sparrows another.

There can certainly be too much of a good thing. Disruptive innovation is based around the theory that products and technologies get better much faster than consumer's needs do. Again, being the best, at least in technical terms, may not be the best thing to be. How many mega-pixels or shaving blades do you really need? Or take the post iPod music systems - did any of us need the 11-band graphic equalizer?

Interesting thought, perhaps leads to the point that 'good' has context around it, and maybe a limit too. We, or customers often don't qualify our expectation but that's what we mean. We want a hardy, native plant that's less-disease proof - but not the one that is so hardy that it chokes everything around and refuses to die. We want a product that 'works'. We don't want to run faster than the tiger - especially when it's just a pug chasing us.

Interesting, right?

Is there a link between Employee Loyalty and Customer Loyalty?

noreply@blogger.com (Ratul) — Mon, 03 Nov 2014 13:50:00 +0000

Well, employee and customer loyalty are different things, right? There are different programs, processes and owners that drive merchant or channel loyalty, customer loyalty and employee loyalty in many big companies. In other companies, all of these may not exist but what does exist, say customer loyalty programs, don't ever concern themselves with employees or partners.

What if there was a link?

One end of the spectrum would be a great company, doing well, and selling a great product. Customers are happy, which is why the product sells a lot. Employees would be happier here than in a slumping company with sad products to push, no matter what the HR policies are. Employees of a successful company tend to gain more resume-value (e.g. doubled sales from X to 2X), have more promotion and increment chances since such companies tend to earn money and expand, and in general even if they're riding a wave, feel proud about their numbers. But while this logic may hold, there's a much better, simpler way to see the relationship between the two loyalties.

A company is its products, its customers and its employees.

Imagine a restaurant that you want to be loyal to, but that loses its doorman every week, chef every other week, barman now and then. Now what will bring you back? It can't be the food since the new chef will cook it a bit different, and it can't be the service. Most of all, you'd suspect the restaurant does something wrong by its stakeholders. Just the brand or the interiors can't create loyalty. And more than anything else, especially in the service industry, the product is a function of who delivers it. The trainer is the training, the salesman is the shop and the call-center employee is the company. Once these front-facing people leave, patrons think the place 'isn't what is used to be'. And it applies to product companies as well since IP finally resides in people. It's just that all of them aren't leaving together - else we'd know that KM systems can only do so much to preserve knowhow.

Allow me to also claim, for a bit, that since a company is a set of employees, employee-loyalty is loyalty to other employees. Once a company loses some employees, it'll lose more since the act of employees leaving spoils the employer-brand ones and of-course, those that leave can poach. So if you think the doorman is okay to let go but not the chef, you may be right... but only till the doorman tells the chef about his great new workplace that also needs a chef.

iDEA - Link Employee Feedback to Customer Benefits

noreply@blogger.com (Ratul) — Tue, 28 Oct 2014 18:30:00 +0000

Space-a-spade, most customer-benefits that are at the discretion of store staff do to placate a kind of customer that, honestly, one could do without. But tell me something, have you been to hotels where you have been nice to the staff and the staff to you? Then when you visit them again, they remember you and sometimes 'pull a few strings' for that upgrade or meal voucher? You probably don't know if the reverse has happened - when you shouted at the waiter and had your soup spat in.

So what I'll propose here isn't completely new, but it still is, somewhat.

What about recording the views of your staff against the customer's loyalty record so that you can reward the better people, not just the blackmailers, the churn-risks and the highest spenders (well, rewarding the highest spender happens rarely - loyalty programs are frequently to reward the worst customers - but more on that some other time). The implicit, anecdotal, ad-hoc, hyper-local version of this anyway works, as described in the beginning of the article, but one could make it organized so that the information, like other loyalty information, is available across the points of service. This may not just reward the good guys, but help identify the serial offenders - those that slip in the strand of hair to get their meals free, those that stain the bed-sheet to get the champagne, those who think waitresses enjoy being flirted with and so on.

Today these guys walk free of their past, actions remembered only for a short while by the particular people who encountered them till those particular people are in the same establishment and so on. This simple change in the customer record could take away their invisibility. The next time the customer walks into your bank, hotel, restaurant or shop - the screen will flash on the reception. And who knows, maybe in the long run, when you take away anonymity,

I'm not sure if I've thought of all dimensions. Maybe there's more. Maybe there's potential for misuse, but that's like asking if you would trust your employees to give fair reviews. Maybe this system is against sometimes-nasty-but-overall-nice people or now-reformed people who are, like all of us others, noticed and remembered more for the bad than the good - but that's just a calibration issue. I don't know - sometimes it seems like an idea that should already exist, sometimes as something that needs more thought.

What do you think?

ps: of-course at the base of it all is still the question around whom does your loyalty program reward - the bad customer (which is usually the case) or the good kind that you want more of. If you haven't answered that yet, read this post once you have.

What constitutes "good" inventory?

noreply@blogger.com (Ratul) — Sun, 26 Oct 2014 07:36:00 +0000

Is "good" inventory a lot of things to sell? In a marketplace context, we often speak of one platform having better inventory than the other. Please correct me if I'm wrong, but this is often a statement that comes out of an inside-out view. Let me try and explain.

My usual method to feel the elephant in the room, regular readers know by now, is to ask questions. So, when we say a platform has good inventory, do the customers also say that? Is buyer-feedback good enough on this topic or is non-buyer feedback equally if-not-more important? Let's take an example of shirts. If you have a million shirts and none in my size, do you have good inventory? If you have a million in my size but none that I like? What if you have a thousand that I like in my size and like the ones I like, and I'm not able to find them using your search and browse? What if I find what I need but I don't like the price or terms of delivery? Feel the elephant? Isn't it bigger than we imagined? The end of all these paths is no sale.

But like they say, no two silences are the same since both could be the absence of a different word.

Let's get the basics out of the way. Having a lot of products to sell, on the shelves, is not a guarantee to a perception of good inventory. Second basic, the perception we just mentioned, is reality. There is no other sense of 'good' or 'bad' inventory. Third, all enablers we keep worrying about - having the right sellers or suppliers on-board, getting them to list everything they can - are all just that - enablers, and the customer doesn't think of those as inventory.

Consumer in, the first thing to build would be Demand. If the consumer doesn't want it, or is not aware that the category exists on your platform, why even bother? The second could be findability. Through browse or search, the consumer must be able to find or discover the product. The third bit could be decision-tools if needed (spec-compare, shade-match, size-converter etc) along with the completeness of range (could mean SKU coverage for standard cataloged products and width otherwise). Then there is the catalog itself, or listing quality if the category is uncatalogued - often a stumbling block for marketplaces. And the picture still isn't complete without the all-important wrappers of price, payment and delivery terms. If all matches, and these don't, it is still, after all the effort, not a sale.

Before we link a perception of bad inventory to bad sourcing, therefore, we should check for where the funnel is broken. It is possible for customers to, rightfully, feel you have bad inventory for more reasons than that.

The Fallacy of the Gambler's Fallacy - and Truth on Winning Streaks

noreply@blogger.com (Ratul) — Fri, 03 Oct 2014 08:50:00 +0000

I'm sure all of us have heard of the Gambler's fallacy. The Gambler, in short, knows probability but not well enough. If he sees five heads on five tosses of an unbiased coin, he believes the next time will surely be tails since over a large number of tosses, it's supposed to be 50% heads and 50% tails. What he misses is that each toss is independent - completely unaffected by what the previous tosses have thrown up. Motivational angle - if you try something like clear an exam, some event that, say, has a probability of 25%, you have the same 25% shot the fifth time - even if you flunk the first four times.

Wait, something wrong, right? Right.

If you clear that exam the first time, your chances of clearing it again are much better than 25% - it's close to, say, 50%. If you have cleared it four times, it means you really know the stuff they're asking, the probability now is close to 100% I'd say. Taking the same test multiple times, it turns out, are not 'independent' events, and events need to be independent for the Gambler's Fallacy to apply.

Now while we get that, to add to it, there's a very different behavioral, human angle to this.

As long as we carry our past with us, and as long as our attitude has a role to play in the outcome of the event, subsequent events in life are not independent. When we're on a 'winning streak', we approach things differently. We have high confidence, low fear of failure and that attitude inspires confidence in those we interact with, from an interview panel to an investor. When we're, to use a bad word, losers, we do many of these things wrong. We're doing stuff 'designed to fail' then. Arrogance, insecurity, inability to accept, learn and correct, downward spirals - they happen to us then.

The financial markets will tell you for other stories, of expectations creating reality. Wins bring investments that can bring more wins your way. Failures dry up investor confidence, funding, and shots at success. So there's an external 'expectation' angle too. So, the interesting question is - is the Gambler's Fallacy a fallacy? or better put, what really are Independent events? Go read about the Butterfly Effect, go read Chaos by James Gleik.

The Fallacy is fine, but do check the fine print on whether terms-and-conditions apply.

Discontinuities and Corruption

noreply@blogger.com (Ratul) — Mon, 22 Sep 2014 05:49:00 +0000

- and putting the goal-post where the ball is

Often when the regime changes, specifically for a company, there is supposed to be a process of handover. If there isn't much of that, it's assumed to be a time to start with a clean slate. What is interesting is that it's also a time for the most common and the easiest kind of corruption - being insincere with your work.

Don't get me wrong, I'm not saying humans are corrupt when they get a chance - I'm only, for now, saying that it is a possibility. Humans are known to optimize.

When you take over a new position at a new company, you'll rely on the existing employees, juniors and peers, to give you background. Some times there are too many changes in a short while in companies. Sometimes a few exits snowball into an avalanche. It is common to assume the ship is sinking when mice are seen jumping ship. And at those rare occasions, legacy is in the custody of very few people. Those few people can change the history if they want. It gets even more complex when the previous leadership is not contactable or hostile and no longer interested in your welfare.

What that leads to is an interesting phenomenon that I have heard mentioned across companies. The goal post can move now - to where the ball ends up. If profits are down and turnovers are high, you'd be told that's exactly what we set out to do. If an irrational decision was taken, it was taken by the previous leadership. People will come to you mentioning past promises made to them of promotions and raises.

Most new leaders pass - there's so much more to be done in the initial few months that the archaeology can wait. Some dig in only to get trapped in the mud of conflicting versions and unclear evidence. No one wants to start off doubting peers and juniors. I'm still wondering what is the best thing to do, and how....

Who is your benchmark? Does that determine your success?

noreply@blogger.com (Ratul) — Mon, 16 Jun 2014 10:36:00 +0000

I remember being trained on the Baldrige Model quite some years back and quite liking the concept that a metric did not mean anything unless it had a trend, a comparative, and a benchmark or goal. the statistic (e.g. 15% gross margin) could mean anything, or its opposite, depending on the trend, comparisons and the goals.

That brings me to an interesting discussion on choosing your benchmarks. Since that has such a huge role in defining your story, and since one has such a huge flex on deciding benchmarks, wouldn't that be the Achilles' Heel of determining your future actions, and your success? Example - if my headcount is 100, and a competitor is at 200 at the same business value, I could be at double employee-productivity. But then maybe another country in my company is operating at twice that productivity already. Maybe I can look at a benchmark in a different but similar industry and find another story there.

Truth be told, a company is a group of people. People try to maximize utility (in theory, don't get me all behavioral here), and they will pick benchmarks that make them look good. I have rarely seen benchmarks being questioned, leave alone audited, in a company. Herein lies the loophole.

But hang on, I am not even saying this is all bad intent - it could just be lack of thought, or information, or knowledge, or just legacy, that makes us pick the wrong benchmarks, set the wrong targets and get the wrong feeling about our market success.

I like asking people for alternate benchmarks - give me one that makes you look good, one that makes you look ok / bad and one that makes you look pathetic. Then pick two - yes, two. One for the external world when you want to justify your performance and ask for your raise (make sure this one is logical and defensible though), and one that you use to push yourself and your team.

What are your thoughts?

Battles in life are fought from where you stand

noreply@blogger.com (Ratul) — Mon, 16 Jun 2014 10:12:00 +0000

Very often, when one conducts strategy brainstorming sessions, two beautiful but often futile phrases, typically starting with 'if only' and 'only if' make their way into the discussion. If only we hadn't exited that one segment three years back, only if there was more money coming from the headquarters, and so on.

There is some beauty in thinking out-of-the-box, and in thinking about possibilities - my only issue with these discussions is that they take away time from the more here-and-now talks that are probably more useful, and maybe critical to have. Competition has a model of eCommerce where they carry inventory, we don't. There's little point thinking only if we had the inventory model too. It's a useful discussion if you are thinking ten years ahead - if you're thinking just the next year, maybe there is other stuff to fix. Battles in life, not only organizational, but also personal, are fought from where you stand.

If I was standing on top of a hill in this battle, I'd roll a boulder. But if I'm in the valley, that's where I am and that's where I'll have to fight from. If I roll a boulder, it'll roll back on to me.

Maybe I should not be searching for boulders to roll. I should be thinking about avoiding stones that I'll get thrown on me. That's my today. When it's a good time, I should think about how to get on top of the hill. That's tomorrow. And if and when I do figure out a way to the top and get there, that's when I should look for a boulder to push. That's day-after.

Can Data go the Public Goods way?

noreply@blogger.com (Ratul) — Thu, 12 Jun 2014 09:41:00 +0000

We know Public Goods - we read about them in introductory economics. There are fishermen living around a lake that's become prone to overfishing, and now fishing it banned there. If one fisherman still goes out and fishes, it is his gain and everyone else's loss. If he does not go fishing, it's his loss and potentially, everyone else's gain. No prizes for guessing what happens.

Now data, come to think of it, is getting easier to get. A whole lot of our lives right from our correspondence to reading to shopping lists to shopping to money have all become data. A whole lot of data sits in servers and the cloud, and at some permissible level of aggregation, all data can be and is sold. There is data about you that I have access to that you don't know I have access to - and this is still legal. Beyond what's legal, there's obviously a lot more that can happen. People can use this data, for good purposes (e.g. check, you have high heart-risk in your family, heart attacks peak in the winters, most happening within one hour of getting up, and you have run out of your medication...and so on) and otherwise (don't want to give examples here, but you get the drift, right from invasion of privacy to selling you crazy stuff to outright blackmail). So what will data operators do?

A lot of the data is just out there. There could be a traffic camera capturing your movements, your cell-phone operator knows where you are, social networks know what you like, search engines know what you search for, eCommerce guys know what you buy, and so on. The list is endless and includes your stock-broking-engine, your bank, your tax-software and everything app you have on your phone and every website you sign into. To make matters worse, all these guys are bombarding you with cookies that now know information across platforms and websites and try to make sense of it.

There is the obvious risk of malpractice, data-leakage and hacking. And there are simpler risks like just the headache of irrelevant offers made to you, and others knowing what you are - which could be uncomfortable sometimes. There are Target-like examples of knowing too much. There could be violation of data-walls, the issue ot shared-devices and the joke about the wife who complains that the only thing my husband cleans at home is his browsing history! Or the cartoon about the wife who knows the surprise her husband has for her because the common PC is bombarded with retargeting ads for that gift. Mind you, this is before the internet of things hits us in our face.

Mature businesses don't want to use any data the consumer doesn't realize he's shared. But there are all kinds of companies out there at all stages of desperation. There are lax laws on this, one could always argue out a certain level of anonymity that is still insightful - in other words actionable and useful to a company. Today the cookie people get paid by the platform that gives them data as well as the platform that uses it.

Now what does your crystal ball say? Can it go bad to the point that the Golden Goose of data is killed by some operators? Can consumers get miffed to the point that they (try to, it's tough) share data altogether, or at least lobby to get legislation around the use of data unless the operator has an explicit, simply-worded opt-in with a forewarning?

What do you think?

Loyalty - so much more than RFM

noreply@blogger.com (Ratul) — Thu, 12 Jun 2014 09:38:00 +0000

What does RFM mean? Someone's shopped recently - does it mean the person is more loyal? Frequency is again a function of category - one should look at share-of-occasion and not frequency unless one is working within a closely defined category - which is rare. Monetary value similarly means less. These three factors perhaps are telling you which customers are contributing disproportionately to your company's value - but but not as much about how loyal they are and why.

Talking of loyalty, the first distinction to be made is obviously between purchased vs. natural loyalty. Purchased loyalty - buying occasions induced by throwing money at the customer is more in the league of buying turnover and hence not really part of a loyalty discussion. The use of insights and analytics to this field will at best yield a better efficiency for interventions such as subsidy and coupons, but loyalty by definition is not this, right? Now that brings us to the rudimentary but complex topic of defining loyalty and more importantly, remembering the definition as we go about undertaking various activities under the garb of loyalty. For this discussion, therefore, paid loyalty is out of syllabus.

The second most important distinction to be made is between attitudinal vs. behavioral loyalties. Both are important and in syllabus, but it is still important to put the right label when we speak - because both are fairly different animals. While behavioral is observable, measurable and clear, it cannot easily answer 'why' questions. One could have high exhibited loyalty just due to the lack of alternatives, or better alternatives. It is a practical kind of loyalty to measure though, and a focus here ensures one is not wasting time running faster than the tiger. At the same time, it is important to remember that buyers can be loyal and potentially open to switching at the same time - not single but ready to mingle nonetheless.

The attitudinal kind of loyalty is the holy grail of the 'why'.

Storks mate for life. Wild dogs, ants and bees exhibit loyalty to the pack. Dogs may not show loyalty to their mates, but they're loyal to their human masters. Cats are said to be loyal to the house and the lioness to the 'position' of the most powerful lion. The logic of loyalty is certainly complex and non-trivial - and we haven't even started talking about humans.

We haven't spoken about how some people may be more 'predisposed' to being and staying loyal. This is something you could possibly measure - such people have clear favorites that don't change that often. in most cases - music, food, colors and so on. On the other extreme are 'variety seeking' people - who like to try different things and not get tied into a pattern. The first person, if ordering five dishes in a restaurant, will order four familiar ones if not five, while the second person will order only one familiar dish if at all, and others he hasn't even heard of - the more exotic the better. Of-course the perplexing question here would be are the predisposed people already taken? Or they still have 'open' slots for newer brands to latch on?

A close topic is the cultural context to relationships - in India, disloyalties to a girlfriend are commonly / socially forgiven, but not to a wife. Disloyalty to an employer is again, forgiven - but in Japan that too, is a matter of loyalty. Within various age-groups in India, the elder generation is probably still loyal to a brands like Bata and Tata, the younger prides itself on discovering new, cool brands every day.

We haven't spoken about some categories being more prone to loyalty - more 'emotional' and less 'commodity'. Now who's loyal to a brand of memory-cards? But we are, to mobile phone brands, right? What about inherently infrequent purchases like double-beds? How many will you buy even if you're loyal to a retailer?

So clearly, we aren't having the debates we should be having - we're merely talking about which customers already bought more from us. We're talking about cross and up-selling, driving repeat and many things I completely respect - but loyalty is the wrong label for these conversations.

After we separate the discussion around transaction incentives (don't you hate the term 'paid-loyalty?'), after we speak of customers predisposed to loyalty towards categories they care about, after we put the filter of financial and emotional viability on it - in other words creating loyalty drives meaning for the customer and the company, after we separate behaviors from underlying attitudes, then and only then would we begin to understand this noble emotion.

ps: thoughts welcome - I think it's happening to a lot of other big words (e.g. Trust - familiar?) too. More on that later.

The Concept and Problems of Modular price

noreply@blogger.com (Ratul) — Sun, 06 Apr 2014 14:08:00 +0000

The new Honda City in India has been launched at a price ranging from 7 Lakh to 14 Lakhs. It has the usual variations of engine-types, interior-options, accessories and so on. Airline tickets come with an insurance that's bundled but if you search, there's a small radio button to exclude the insurance mark-up. There are strong views that unbundling the price is buyer-friendly and more than that, is seen to be transparent. And yet, there are as many examples of prices that are not modular.

You can't order a Dominoes' pizza without the 30 minute guarantee though, it makes sense to imagine, that pizza could be served for less since the risk of free-if-not-within-30-min payout will then not be bundled with the 'base price'. Why is the price-guarantee-markup not unbundled then? Only Dominoes will know the answer, but I'm guessing it's because the guarantee has become the brand. In some hotels, they'd love to over-charge you for the mineral water, but they think it works better if they hike up the price of the room and give you the water free. What you see is all there is - so Daniel Kahneman says.

There could be another factor though - breaking a price into three could mean three separate decisions. It could mean confusion. When the buyer is not in the frame to give the decision so much time, it's not beneficial. Of-course when I'm buying a car, I have all the time in the world since it is, monetarily and emotionally, a high-involvement decision. So is a house. A holiday is sometimes not. I'm happy to purchase a 'package' because I really don't want to work for my vacation, especially if I can easily afford it. In the eCommerce world, giving the customer options could mean an extra in-between page in the checkout flow, three extra radio buttons, and an extra click. An extra click means additional drop-out. Traffic drops out at every decision-point in eCommerce, and sometimes it makes sense to not give the user that option to think so hard again.

The balance, in my view, is how one separates buying decisions into packages for segments - Amazon Prime won't ask you to select a payment option every time, it'll just ask you to pay up once and give you faster delivery every time. And for the buffet-lunch-types, just lay out the spread and allow them to choose their food, but don't make them decide and pay at every step.