Ready Steady Go

While retail brands have acknowledged that its time for an omni-channel approach and we can now see Indian e-commerce brands building an offline presence, Amazon is finally ramping up the pressure on the likes of Walmart, Trader’s Joe and finally on Indian chains like Big Bazaar.

While Amazon Go or to be more precise, the idea of automation is here to stay, I think retail firms must first consider how they can implement or fight the model. It’s essential retail firms identify whether they stand for a savings or premium approach. By defining their brand and identity, retail chains can best figure how to take the fight to Amazon. At the same time, retail chains need to consider how to mitigate risks (shoplifting, fraud etc). The absence of a physical person also brings into question the ability of brands to create a better shopping experience by stepping in at crucial moments of the purchase process.

But first – Lets look at why Amazon is adopting the offline route. Part of it is about being able to reach out to a larger audience – probably looking at developing markets such as Asia/ Africa where retail space is cheaper and people still prefer a physical shopping experience to online purchases( as Big Basket and Flipkart have learnt the tough way).

Amazon may be approaching this from 3 perspectives –

  1. Hit the likes of a Walmart/Tesco/ Macy’s before they ramp up efforts to provide a better omni-channel experience for their customers and pull them back from Amazon
  2. Acquire massive tomes of data on shopping preferences of customers from physical interactions at a store level
  3. Build a retail infrastructure which can be licensed out to other retail chains, much on the lines of AWS

While the first is more in the lines of a red ocean strategy, it doesn’t tie in with Amazon’s long term plans. However it could still make these companies bleed further and may create a point of consolidation where some of the smaller players look at getting acquired by Amazon or move into a different model.

The 2nd model can help Amazon in it’s long term growth opportunities by enabling better personalisation for online/offline customers and also help them identify how customers approach the offline purchase process. It can also help create a moat against future plans of Google/ Alibaba/Microsoft.

The 3rd strategy  speaks about Amazon’s long term cloud vision where it acts as a multi-user platform enabling higher adoption both by customers and vendors. Through this model, Amazon is creating a situation where retail chains will have to consider divesting their vast legacy systems built with the likes of IBM/Microsoft/Oracle and adopt the new technology to stay relevant to consumers.

It’s also imperative for Google and Oracle/SAP to look at reaching out to retail chains to promote an alternative solution. With Google’s expertise in applying Machine Learning and Data science towards targeting Big Data problems, they can act as a smart enabler for retail chains currently utilizing an existing solution of Oracle/SAP. By linking it to their existing cloud strategy, Google can also subsidize access to data storage for retail chains and help keep the legacy systems relevant for clients. By accessing millions of photos of brands and SKUs, Google can train their algorithms to provide a real time alternative to Amazon Go.

The key here is to see whether Google/Oracle/IBM consider Amazon’s strategy as a customer acquisition strategy or a blue ocean strategy. There is a vast opportunity for Amazon to build the next AWS through this strategy and accumulate enough customer purchase preference information to guide them on becoming a monopoly.

Reforming Indian business and politics

It’s been a week since the concept of demonetization has been implemented. While there may be much debate about the viability and implementation of the concept, it’s here to stay. But maybe we should look at what it implies for both financial intermediaries and for businesses, at large.

Banking Sector Reforms 

It’s a great opportunity for the likes of banks and fin-tech companies in the payment space. While banks have lost out in the initial round to the likes of PayTM, Freecharge, Mobikwik and others, they have a great opportunity to drive adoption of mobile banking applications, UPI infrastructure and RuPay cards. In fact, this is a glorious chance for the government to create a push for deployment of UPI and RuPay among the financially underserved. With Jan Dhan Yojana accounts getting used and a large number of the masses having to access banks/ postal bank, it’s a chance to drive financial inclusion policies and connect it to building a money multiplying effect.

From the PSU and private bank’s perspective, this is also a great way to re-connect with the younger generation who might use an ATM when forced to, but stick with the likes of PayTM and Uber. By providing viable options and creating an ecosystem of local vendors (in the dining , travel and grocery space), banks could leverage their knowledge of the local vendors and businesses to provide greater value to both established customers and add new customers in the millennial segment. This can work much better than the Social Media and Hashtag banking efforts tried in the past to get people to connect with the bank.

Local Business Reforms

Apart from the obvious threat to jewelers, real estate developers and small time contractors who operate on a cash only basis, the policy is a huge threat to e-commerce companies and lifestyle brands. With COD being given a death strike, it’s going to be tough for e-commerce companies to push up revenues in the next quarter. However it’s a good time for e-commerce firms and retail brands to stop discounts and focus on customer experience and build lifetime customer value.

It’s a great opportunity for local vendors, be it dining / grocery/ service providers to break the hegemony of the aggregators such as Swiggy/ HouseJoy/ Big Basket. By partnering with local banks and other B2B payment players, local vendors can provide a personalized touch with a cashless experience for customers.

Political Funding Reform

With political parties losing access to black money for rallies, helicopter rides and pompous posturing, this is a great opportunity for India to establish protocols for donations to political parties. Either  on the lines of PACs that are created in USA or having clear defined rules for political donations and funding. By creating transparency in the political funding process, it can be easier for us to see how the donated money is utilized.

The next step could be empowering the Lokayukta to investigate not just politicians and public officials but also how public projects are being implemented. This can be a check on impromptu projects such as the Bangalore flyover which came up alarmingly close to a set of elections and had no logic for a two fold increase in the funds allotted.

 

Learning from Tesco’s Tumbles

So I read this article on HBR today morning which talks about how Tesco focus on customer loyalty and data analytics have lead to their downfall. Although some points in the article are correct, most of the article focuses on the wrong points.

The problem with most retail firms and brands is their concept of customer loyalty and the application of data analytics. Customer Loyalty is not about flooding customers with offers and benefits and data analytics is not about using big data to find out post purchase trends and try to apply those to predict the future. The key should be personalization of the retail experience and improving the retail experience such that customers choose to return to the store, not just because of offers/ loyalty points but because they want a repeat of the excellent retail experience they had.

In  recent times, customers are flooded with offers, point schemes and cashback offers. The value oriented customer may switch retailers or choose to go with another chain for a while for limited monetary gains. However the lifetime value of a customer is not limited to temporary switches, its dependent more on the overall experience and perception of the brand. Since retailers look at increasing ticket size and profits over time, the concept is to get not only the person to visit on a regular basis but to also change their purchase behaviour.

Increasing profits happens in three ways:

a) Applying customer analytics to understand the standard bundle of the customer and provide attractive benefits for standard purchases along with additional benefits for impulse purchase products to increase ticket size.

b) Personalizing the shopping/ retail experience for the individual customer by providing retail personnel and shop assistants with a certain level of information about the customer and his/her purchase habits

c) Slowly moving customer to private label brands where margins are stronger and customer loyalty can be strengthened

The problem with many retail units and chains is that while they do try to apply data analytics and customer loyalty programs to achieve these targets, their implementation is fragmented and poorly understood by the retail personnel. Few retail chains try to personalize the retail experience or provide a customized experience which will make the shopper consider returning to the chain/ outlet. Also customer experiences vary across outlets of a chain, which creates further dissonance and which necessities strong training and customer service practices in the core identity of the retail organization.

So the problem for Tesco is not about their choices of data analytics or customer loyalty programs. its about how they were implemented and executed. Until these issues are resolved, its not possible for Tesco to reap the true benefits of their investment and increase the lifetime value of their shoppers.