Can someone explain the math to me?

News paper advertising charges are nowadays on a per square centimetre basis. The advertisement shown is actually of a fairly small size. However, repeating the message, using modified language seems like colossal waste. Or is it that this retailer thinks that the customers are so dense that they need the message dinned into them in two different ways?

A simple way to make this communication effective would have been to increase the font sizes and make it more eye catching.

Installation on the same day; Did it build the brand?

Expectations created and not met are not only dangerous, but deadly for any retail brand!

Consider the example of an advertisement I shared some time ago wherein a powerful pain point for consumers had been leveraged to hopefully build credibility and thereby creating a competitive differential for that retail brand.

Now let me share the other side of the story.

When I was recounting this during the MBA class I teach retailing for, several hands went up wanting to refute and share a counter point of view. For most, the claim in the advertisement was downright hilarious as their real time experience in getting the air conditioner installed took anywhere from a week to almost a month.

Is it any wonder that the retailer has realised the folly of a hollow promise and has dropped that claim/ promise from the subsequent communication. Still, they could not desist from a somewhat similar claim of providing installation on Sunday, if purchased on that day! Let’s see, if this one lives up to the expectations being created.

As Mr. Ogilvy said; the customer is not a moron. The sooner retailers realise it and constantly keep it in mind, the better for the retail brand.

Why social networking sites are not being used by Indian Retail?

Twitter, the micro blogging site is gaining strength each passing day. Yet, I don’t see this being leveraged by any of the Indian Retail Chains, leave alone the Indian businesses. This has the potential to become a great sounding board for customers as also an information source for retailers. I would leverage this medium in myriad ways, starting from the following –

• Create a followers base of all regular/ loyal customers and tweet all promotions and offers details.
• Leverage this medium to increase the followers’ base by offering some exclusive powerful offers only to twitter followers with a unique alphanumeric code. They need to show this tweet at the cash-till wherein this is captured for audit purposes and the promotion is extended to the customer.
• Leverage the power of retweet to increase reach and the number of loyal customers.
  Create a database of potential part time employees who can be sent tweets in times of special promotions where extra man power is required.
• Conversely, customers can tweet their feedback/ suggestions and complaints which can be directed to the respective department with a date and time stamp to track closure and measure reaction time.

Sceptics would debate about the penetration and awareness of such applications amongst the Indian shopper, especially the India Housewife. All I can say is that there are lots of net savvy housewives and individuals in India today and these initiatives will only create further impetus for others to take to this. I recall a news report way back in 2007 which talked about how housewives are increasingly doing online trading in shares! I rest my case.

Similar to Twitter is Facebook. Why can’t Indian Retail leverage it the way ZooZoo’s of Vodafone did? Create a group, invite fans as also invite feedback and suggestions. Create interesting messages to be shares and propagated. Simple things like wall papers, screen savers of interesting advertisements, automatic updates.

In fact several consumer review sites like mouthshut.com are being ignored by retail marketers, assuming people are even aware of the same! This site has close to 90 listings each for one of the corporate chains and similarly significant number of reviews about others. I wonder if this is being even seen or tracked by anyone and reverted to? At least is someone aware that such a thing is there on the net and I am talking about only one such site. Word of mouth advertising is the most powerful toll for a retailer and ignoring such public feedback is not going to help the lakhs and crores of marketing spends being indulged by these retailers.

In summary, there seems to be a serious dearth of creativity in Indian Retail with regard to maximising the marketing efforts and budgets available. What has been done since the mid 90’s in terms of product and price communications, using red and yellow seems to be a clichéd, repetitive pattern. I for one do not believe in knocking the old, tried and tested methods. But I also do not recommend being blind to new developments and not exploring every such new opportunities, especially low cost and high impact options.

Is there a fear psychosis?

The above picture was published in today’s “The Hindu” newspaper and shows the Fort St. George which was where the East India Company built a fort and formed a settlement. In a year’s time they had built a warehouse and a stockade.

Retail or trading as it used to be in those days has truly been the building blocks of an empire. Even today Retail in most developed countries is the largest employment provider and a significant contributor to the economy. In India too this might be the case, excepting that no one knows the true picture because of the fragmented nature of this sector.

The above picture prompted another thought. Is there a strong fear psychosis behind not allowing international retailers into India? Is there concern about a repeat of East India Company? The fact of the matter is that retail as a sector would definitely be a strong component of any economy. The government needs to think along the lines of allowing retail FDI while retaining strong control and curbs and not be blind to its benefits because of what happened centuries ago.

Lastly, I am not too familiar with the retail FDI rules in the UK but from what I know there has been no space for Retail players from other countries apart from a few exceptions where international operators have taken over UK Retailers such as ASDA.

Is that an alternative route to go about developing Indian Retail? Focus on enabling local corporates to build a strong and vibrant industry?

Regardless of the route chosen, the government can ill afford to sit on a fence dithering about how to manage this industry while consumers are voting through their wallets for the modern formats and chain stores.

Private Label Strategy - Part I

"Indian Management" is a magazine published by the Business Standard group and is the Journal of AIMA. The August 2009 issue featured an article about Private Label Strategy, written by me which I would like to share with all of you.

What is a private label?

Private label products are usually manufactured by a company and sold under the brand of another company. This is a common practice in retail and is also referred to as store brands. Private label portfolios are a powerful margin enhancer for any retailer and most chains promote them aggressively. Such products also deliver several other strategic and tactical benefits to a retailer and are emerging to be a strong factor in any successful retail strategy.

Private label or store brands have two components. One is the product and the other is the brand. The product component is usually benchmarked to an existing one, usually the market leader, in terms of features and benefits. This helps in creating an easy benchmark in the customers mind.

Typically, store brands leverage the branding of the chain and the trust that customers repose in the stores. So, when the customers see a near similar product on the shelf and which has either better features or a lower price, the tendency to pick up that store brand SKU is high. If the product meets the customer expectations, the store brands subsequently substitute the national brands in their shopping baskets.

So, how do retailers get their act together in this regards?

First they define the branding strategy for private label. This is very important because this will not only guide the choice of products but also the features to be included, the packaging, pricing, etc. Typically the retailer adopts an overall private label strategy. The usual strategy used by the majority of retailers is to follow a good; better; best approach.

This strategy clearly defines the portfolio into three segments. The ‘Good’ segment is often the base version or functional products wherein the features are matched but the pricing is significantly competitive. The ‘Better’ segment operates on either better or additional features at similar prices or even lower prices. The ‘Best’ segment is the top end of the portfolio and has a dual role. This segment apart from enhancing the category offering helps to build the overall store imagery as also ensure that the private label portfolio is perceived to be comprehensive and not only cheap products.

Next is the approach to the branding of these products. At a macro level there are two options. One is to use an unrelated brand name for the products and the other is to leverage the store’s name as a prefix followed by a branding which is often a descriptor like Value, Premium, Organic, etc.

Most retailers seem to veer towards the store brand with sub brands for each group as against a generic unrelated name. However, it is not uncommon to see unrelated brand names in certain situations like in the case of Apparels, where customers would prefer some nice names instead of XYZ Cottons. Also, in the Indian context where retailers are experimenting with trying to also distribute the store brands to the trade, have the store name on the product might not work.

Once the overall private label strategy has been finalized and agreed upon, detailed guidelines with regards to the product differentiation, segment classification, packaging guidelines, etc are developed and circulated.

The trading team in the meanwhile would have identified products which would qualify for a private label. This is done basis two main criteria; is there an existing gap in terms of product and/ or price, is the current offering generic and therefore offers an opportunity to create a brand and leverage the first mover advantage. The selected products are then evaluated and the suitable positioning is decided basis the guidelines for each of the segment - good; better; best.

Private Label Strategy - Part II

Is it worth it?

The natural question that would come to anyone’s mind is whether all this effort is worth it? After all there is a cost attached to all this effort too.

The answer is an unqualified Yes. The effort is more than worth it. Let us see how.

The biggest benefit lies in benefiting from the differentiated cost structure. A retailer typically leverages the existing manufacturing capability of someone else and hence does not have to incur fixed costs with regards to manufacturing. This is a clear savings and a significant one. Second, most store brands leverage existing technology and as such there is no R&D cost to be recovered. Third, there is no need for a separate sales team to generate demand and hence the cost of that effort is also saved.

In addition to the absence of the above mentioned costs, store brands incur far lesser advertising, marketing and transportation costs as they piggy back on the existing infrastructure and promotion of such products is usually done in-store which is not very expensive. In fact some chains actually promote such products as “No Name” brands to strongly communicate the extreme price value that these products deliver.

China’s emergence as a manufacturing base for the world has created a lot more of opportunities for private labels which international retailers are keenly taking advantage off. This is basis the cost advantage detailed above.

Next, a good and well planned private label portfolio helps the retailer in increasing sales in addition to margins. The cost advantage enables the retailer to price these products significantly lower and/ or give added features too. Not only does this induce customers to switch to private label products which deliver higher margins, but in most cases it also increases the overall category sales. This is because of the fact that brand loyalists continue to patronize the brands and many new customers start purchasing the private label products.

A classic example is the private label CFL that was introduced by a leading retailer. CFL bulbs are a nascent category and are only now beginning to make a mark in the sales charts of any retailer. When the private label product was introduced, many new customers entered this category and the overall sales went up. Although most brands did not lose out too much with regards to sales, the private label picked up a majority of the new, incremental sales. Similar examples abound in several categories. In fact, during the early days of corporate retail store brand jams have had a similar story.

Most importantly, store brands offers an exclusivity that further fosters loyalty of the shopper and creates yet another strong reason to shop at a particular chain only.

So, the rewards of a private label program goes beyond just margins and sales and over a period of time can become an important element of the overall strategy. Is it any wonder that some chains generate more than 40% – 50% of their sales from private label products.

Private Label Strategy - Part III

The Indian Private Label Story

In the Indian context the private label play is slightly different from how international players do it. Internationally, the product team is extensively involved in the product development and has a say in each component and feature of the private label product. Many a time the representative of the retailer is a regular visitor or even stationed there to monitor the production.

This is possible because of the enormous volumes that this is made possible by the large number of stores that international retailers have. These volumes are good enough for even larger manufacturing units to dedicate their entire production for a few months or even dedicate one production line permanently.

However, Indian Retail has not yet reached that stage and it would take time. So, how does private label work in India?

It is largely done as a pricing play. This means that existing products being manufactured are chosen and packaging is changed to reflect the store brand. In certain cases the features or composition is tweaked marginally to create a differentiation.

The other peculiarity with regards to Indian Retail is the high percentage of basic grocery sales. As much as 25% – 30% of a family’s monthly shopping consists of staples. Other than Oil, Masala, Salt and Atta, there are no major brands in most other grocery products. So by default every retailer starts off with a private label contribution of anywhere in the region of 20% - 25%. Then comes the other private label products which would average 10% to 15% nowadays, barring exceptions.

The exceptions are stores which have only store brands in their range and have adopted it as a business strategy. Internationally Marks & Spencer’s have done this and in India, Westside does this successfully. If successful the upside to this approach is enormous starting from a shorter cycle time to break even due to higher margins. The downside is that this becomes an all or nothing game.

Lastly, Private Label or Store Brands are an undeniable part of any retailer’s life. Scale enables it and it enables scale and that’s the chicken and egg part of the story

A rose by any name???

I recently read an article about how several retailers in India have managed to use distorted/ modified versions of several international retail brands very successfully. This has been implemented so well in certain cases that if the international retailer were to enter India, they might have a serious issue in terms of not only competition but also consumers mixing up the retail identity.

It was rather co-incidental that I happened to come across this store in Kerala during a recent trip. Interestingly the name is the same as that of a famous supermarket chain. Is it that the chain is so well known in Kerala and this operator is leveraging it or is it completely unknown that no one can make the connection!!