Mexican Faceoff

In recent times, we see strong declamations from major electronics brands stating that e-commerce players such as Flipkart and Snapdeal do not have authority to sell their products at a lower price and that any products purchased from such players. E-commerce players have retorted that the decision lies with the customer’s preferences and that products purchased from them are genuine and will enjoy any warranties or privileges accorded to other customers. Apart from brands who dont have a classic retail presence, even major chains who have an offline and online model(Landmark, Croma, Shoppers Stop and Reliance Retail comes to mind) are losing money because many folks choose to check out the products at their store and then check prices online to get a better deal online.

Integrated Approach, which isnt really working

Integrated Approach, which isnt really working

This is a trend which is true not just in India but has been prevalent for quite a while abroad( in fact the correct term is showrooming and was associated with Amazon for quite some time , till specific tax laws were brought in to help retailers). The point missed by most people is that digital and brick and mortar are not quite separate and not quite integrated as well. A lot of major chains imagine that they can follow an integrated approach where a person visits their stores to get an idea of the look and feel but can also buy online. However with a proliferation of e-commerce platforms and marketplaces in India, that concept has been laid to rest.

Customer Cycle

Customer Cycle

The important point for brands to consider is ” Who does the customer remember and turn to, at the end?” . By purchasing a product at a lower price on an e-commerce platform, the loss for the brand is two fold – loss of margins in terms of payments made to the ecommerce platform and gateway and more importantly, dilution of the brand as it gets labelled as a discount brand.This is a factor already seen across apparel brands where folks seem to wait more for the seasonal End of Season Sale rather than actually peruse the new collections and purchase them when they want. This commoditization of the brand means long term doom as over time, there is little to differentiate the brand and its products from others in the market, specifically new comers from the Far East or other stretches of the world.

The second important point is that most brands forget that the entire purchase is an experiential point. We reach out to customers at multiple touch points in their life. And each touchpoint is important to maintain the same customer experience so that over time, the customer builds a certain image of the brand in his/her mind and retains a perception of the entire purchase. By tying up with e-commerce platforms, brands lose control over an important aspect of the purchase cycle and over time, the brand loses a chance to impress the customer.

Its time for brands to move to a different model, where information is easily available both in store and online and the purchase process is made far simpler. For that, brands need to make an investment in upgrading Point-of-sale systems, educating their staff and working in tandem with technology providers and financial systems to make the purchase experience seamless and simplistic for customers. To a certain extent, e-commerce platforms can lure a customer through discounts , taking the risk of the payment on themselves through Cash on Delivery, and by regularly reaching out to customers digitally. But brands have a far greater weapon – creativity and control over the product. At the end of the day, its the product which sells. The day it moves to becoming a commodity, like salt / sugar, where brand doesnt matter, the brand loses all value.

P.S: Feel free to share your thoughts and comments

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Wassup Doc

I woke up today morning to learn that Whatsapp had finally been acquired by Facebook. Although a lot of folks on Twitter seem surprised and think that its a good move, its actually quite a bad move for all concerned except the founders of WhatsApp who end up making shitloads of money. 

Facebook has been facing two major problems: Its not perceived as the cool place to be in terms of online presence and thus as an extension its not being used for sharing content , either between friends or colleagues or people in general. The 2nd problem is partly dependent on the 1st and is also because Facebook has needlessly complicated its platform, making it far more user unfriendly as compared to earlier, when it was just about posting a status and responding to your friend’s comments.

Partly the fact that Facebook took a long time to jump on board the mobile bandwagon also made it lose out on most of the users, specially the next gen who are more comfortable using phones and the application ecosystem rather than desktops or laptops.

Thus, the Facebook board has only 2 options – 

a) Rejuvenate your existing offering

Facebook has been trying to improve itself over the last few years but most of its ideas have fallen flat. A lot of their ideas seem to be copied from Twitter and other social networks, thus making Facebook all the more “uncool”. Specifically ideas like Trending and Messages have fallen flat. The concept of Messages started out as an attack on Gmail and Facebook wanted to use it to keep Google at bay by threatening to hurt them where it would hurt most. However most people never really adopted Facebook chat and messages .

Facebook’s mobile application, although well used is used more on the lines of Gmail , namely to check on whether someone has commented or responded to one of your statements rather than to share content. This means that Facebook is losing out on content creation and sharing, which is a very important aspect for it, as their entire advertising concept relies on users sharing content about products and brands they use as well as engaging with brands online.Equally importantly, Facebook’s presence in the developed world i.e Europe and US is pretty strong but its presence in the developing countries such as Africa and Asia is still a battle with other networks and platforms.

Thus for Facebook, monetization of their ad platform becomes a problem when their user base increases in age but reduces interaction. Their validation as a platform to reach different segments is lost while users start migrating to other platforms. Its also more difficult to gain higher presence in markets such as China where there are already multiple platforms and social networks catering to the specific audience. At such a phase, Facebook has to resort to the 2nd option

b) Acquire a new brand/ network which is aggressively gaining users

Facebook thus has to resort to acquiring brands who are now the hot players in the social network/ content sharing space. The acquisition brings in two benefits –

1 ) a large number of users who use this new platform actively for content creation and sharing, which is necessary for Facebook ads and revenue growth

2 ) Access to new users and groups which are not interested in Facebook currently , both in terms of geographical usage as well as in terms of age groups

WhatsApp was designed as an alternative to existing messaging applications, built on the 1st generation of phone OSes. Thus it has never been aimed at creation of content/ sharing of content as much as providing a platform for folks to update their statuses, much like Gtalk statuses or the initial ways of Facebook. Engagement with users is limited and the company has refused monetization through ads or promoted content , preferring instead to charge users for the application. 

The problems facing WhatsApp have been more about limitations in brand perception and strong competition in developing markets. Although user growth has been good and WhatsApp has seen a steady growth in revenue and user base, its gonna plateau. Equally importantly, Whatsapp, like Gtalk, was ideal for low speed networks where quick easy communication was the necessity. With improving internet speeds and preference for higher quality content , people are switching to the 2nd generation of apps such as Viber, WeChat and to a certain extent Hangout. Thus WhatsApp was already at a crucial crossroads where it would have to decide whether to stick to its simplistic model and lose out in the long run or try to elbow into a space already ruled by multiple apps and possibly lose the current user base who enjoyed the simplistic application.Equally worrisome would have been the fact that WeChat has been aggressively targeting first world markets now, after conquering China. WhatsApp has a low presence in the world’s next big digital market China and saw little chance of making inroads there. Their user base in the developed world was also getting attacked by new apps and the fact that Google Hangouts was integrating SMS and messaging features . 

At such a point, Facebook’s purchase of WhatsApp gives a great exit for the founders. Not only do they get a lot of money just before WhatsApp starts going downhill, they also get to work with a company with far bigger wallet and muscle power to take on companies like WeChat and Google. Provided Facebook tries to monetize it without ads, its a win win for WhatsApp. Facebook however isnt really gonna get much content or user migration from WhatsApp. As a acquisition, for Facebook, this is more yet another attempt to stay cool rather than really focusing on solving the issues that plague them