Good article on China’s consumer’s environment.
At the end of my previous post on Online Grocery Retail, I circulated a link, for surveying and analysing reasons for buying and not buying grocery online. Though, response hadn’t been so overwhelming as I hoped. Nevertheless, here are results.
A. Reasons for Purchasing Grocery Online
|Better Product Selection||13||17%|
|Takes Less Time||18||24%|
|Stick to Budget||5||7%|
|Save Fuel Costs||14||18%|
B. Barriers to Purchasing Grocery Online
|Waiting for Delivery||20||29%|
|Lack of Touch and Feel||20||29%|
|Can’t use Redeem Coupons||5||7%|
1) Most of the consumers are from working age group. With challenging and lengthy working hours, heavy traffic problems add more misery, giving them less time to buy right products. Thus, online grocery offers a perfect solution to all those problems. It is also evident from the results, with almost 50% of the participants preferring online grocery just to avoid traffic and reduce time consumption.
2) Less time in hand (as described above) cause wrong or poor selection of products. Therefore, 17% participants are shifting to online grocery to avoid such happenings.
3) Almost 60% participants feel that lack of touch and delivery time could hamper online grocery market, which is very significant and a big number in my view. This provides important info to new players to focus on these two main issues, in order to get good returns out of this business.
1) Maintaining house budget is a big headache, specially for middle class consumers. Supermarkets and hypermarkets offers delusional schemes. With salesperson, who by the way watching your every move, sometimes present products in a different way, and ultimately consumers end up buying more than required. Online grocery option can prove to be a good solution here. Only 7% participants recognizing and appreciating this, comes as a surprise.
2) Nowadays, many companies are providing its employees thousands of worth of coupons instead of hard cash (as incentive). This gives them opportunity to buy products, without paying any money, in exchange of those coupons. In my view, it can hamper online grocery market profits, but with only 7% people in agreement, I’ve to call it a surprise.
——————- Scene rolling ———————–
(Mr. A: An entrepreneur and Mr. B: A top-notch investor)
Mr. A: I’m seeking a $50,000 investment with 10% equity in my business
Mr. B (smiling): You are valuing your company $500,000. Tell me about your little adventure.
Mr. A: It’s a digital marketing start-up. We provide customize T-shirts to our customers.
Mr. B: You mentioned “we”, any other partner(s) involved?
Mr. A (confidently): Myself and a friend.
Mr. B: Seems interesting. How much business he owns?
Mr. A : Sorry, but he is “she” here and we both are 50-50 partners.
Mr. B (wickedly): Okay. Walk me through the economics of your business.
Mr. A: Well! It’s been only a month and we’ve made $1,000 net profits on sales till this day. T-shirts cost $15.99-20.99. We have sold 350 T-shi..
Mr. B (interrupting): Are you kidding? $1,000 and 350 sales are nothing and you are evaluating your company at $500,000. Its pathetic. Tell me, what’s your differentiation; there are so many similar startups in market nowadays?
Mr. A: I agree but it will be huge soon. We are also planning to include referral system. For say: you referred us to your friend. And if your friend buy our product(s), worth of $35, then you cash-in $2, as a mark of appreciation.
Mr. B: Kind of royalty and that too, so early is a very stupid step. You guys simply are bozos. Okay now, tell me how are you planning to cut off other players?
Mr. A: We haven’t thought that through.
Mr. B: Sorry, strategy doesn’t seems to click at this moment. I’m not interested. Good luck.
Boom!! That’s it. It was over. He couldn’t convince Mr. B to gamble money on his startup.
————–Time for some Q&A—————–
Q. Why did it happen? What are the loop-holes in his proposal?
1) Company evaluation (too BIG, too SOON).
2) No “Extreme Differentiation” (space is crowded and chaotic, so one needs to have a “SPIKE” somewhere to stand out).
3) Profits and sales, both are acute (pilot run in an experimental phase; not fully tested and developed).
4) No strategy to curb competition (providing live reviews, ratings, etc. would help)
That’s life. You started off well, but due to uncertainties in your plan you go downhill. Career is similar. You could start with flying colors but if you lose hindsight, then you are probable to go downhill, just like Mr. A.
Career ladder is similar to doing a business. You start from the very basic (entrepreneur level). Slowly and strongly, with baby steps, you develop your capabilities, and your muscles to eventually rise up to the top. It all about growth. Doesn’t matter how quick or slow it is. Though, it must be significant enough to get you to the next level, every now and then.
Q. How investment and investor could be related to career?
Investments are our opportunities. Both grant us a path to grow, to take calculated risks and to put our focus to different avenues. Thus, helping building our capabilities, as pointed out earlier.
On the other hand, Investors are the people, who believe in your abilities. They invest in you. Take personal interest to give you a fighting chance to showcase your talent. That’s why it’s very important to have right investors in life. World is too big and challenging to do everything yourself. So start building good personal relationships with the right people, if you haven’t.
A quick summary
1) Think and analyse plan of action, thoroughly.
2) Invest on passion first and skills second. Passion always supersedes skills.
3) Restrict yourself from doing too many things, too soon. If you are a person who wants to do many things, then divide them into timeframes on priorities, like till age 30 this, till 40 that…and so on.
4) Don’t let disappointments hamper your thinking. Everything has a time. Your time would certainly come. Keep working towards your goal to become a success.
5) Always smile and get your hands dirty.
Like to end with an quote from the movie: Robinhood (2010)
Rise and Rise again until Lambs become Lions
Recently, one of my friends told me his start-up plans in online grocery retail domain. On asking few questions on what he wants to accomplish, the idea didn’t seem very attractive. Instead, I told him to look for Omni-Channel Retailing as I was a bit more equipped and have done a prior research. Also, after discussing his pricing model, I was convinced that margins here would be razor-thin. But, I realized soon I hurried on suggesting him something else. So, I decided to get some familiarity on “Online Grocery Retail” market.
First Q: What is Online Grocery Retail?
Organizations providing Online Grocery Retail services allow customers to order groceries online and have them delivered to their homes within a particular time frame, usually few hours or same day.
Second Q: Reasons for purchasing grocery online?
a) Avoid Traffic b) Special Deals
c) Takes Less Time d) Better Product Selection
e) Sticking to Budget f) Save Fuel Costs
Third Q: Barriers to Purchasing Grocery Online?
a) Waiting for Delivery b) Confusing
b) More Expensive d) Lack of Touch and Feel
e) Products Damaged f) Can’t Redeem Coupons
Fourth Q: Has this been tried before?
Many companies have both tried and failed in the past last decade trying to mark their presence in such a niche and risky market segment.
Now, Let’s see and analyze Webvan, first major market player of this segment.
The Webvan Story
Webvan was established in 1997. In the dot.com period, because of its uniqueness, attracted many investors and with them millions of dollars. These funds were used to build state-of-the-art warehouses with management team betting heavily on Hi-Tech. Soon after its IPO in 1999, it seemed to bustle right up to the top beating all the competition from supermarkets and elsewhere. But it turned out to be a big disaster both for its investors and employees and went bankrupt in 2001.
Webvan Business Model
a) High-tech Distribution Centers: To increase productivity. The reason behind was the low margins of US grocery retail business. Thus, to obtain huge profits (or huge margins) they need to distribute fast with less man power (less man-power means low salary expenditures) so as to keep no. of consumers, using their website, per order high.
b) Customer Acquisition: The 1999-2001 period saw great boom in dot.com market. Hence, Webvan reached its consumers lightning fast, through widespread and prolonged publicity. But changing traditional approach was a daunting task considering cost structure, delivery and spoilage problems, which affected their customer retention policy.
c) Pricing Model: Charged a $4.95 delivery fee for orders under $50, a threshold it increased to $75 in the late 2000.
d) Payment Structure: Consumers could pay easily and immediately via credit cards without any hassle.
Competitive Forces Model Analysis
a) Threat of new entrants: The market was new and untested. In addition, huge setup costs blocked many new entrants. Thus, it didn’t play huge role in issues such as profitability, customer loyalty, and access to distribution.
b) Threat of substitute services: Supermarkets and traditional retail stores were the only substitutes; with home delivery the only service differentiation. Many consumers reluctantly prefer not to pay high delivery charges due to availability of large number of small traditional stores in nearby areas, which had a huge impact on Webvan’s overall business.
c) Bargaining power of customers: Bargaining leverage was very low as consumers can no more enjoy long-term seller-buyer relationship benefits. And due to fixed price structure consumers’ could quickly shift from online grocery option to traditional stores without any money lose. This hampered their both customer retention policy and profit margins.
d) Bargaining power of suppliers: Availability of many traditional grocery stores and few supermarkets gave suppliers high bargaining power. Suppliers switching costs were low, if not negligible. Plus distribution centers problems with handling of products cause further gain in the bargaining power of suppliers. But since Webvan was the only player selling grocery online and consumers’ attractiveness to online grocery, might had tempted suppliers to compromise a bit on profits, which would had given Webvan some power to bargain.
e) Intensity of competitive rivalry: High-tech distribution centers, comprehensible branding and advertising strategy, and top management team was not enough for Webvan because of its low concentration ratio. The competition was really fierce as most of the market was shared by traditional outlets. And with huge investments needed in both marketing and innovation the Webvan model was not sustainable at that juncture.
Factors Responsible for Failure
a) Large volumes of orders dropped in last 3 months, before the close down. As a result two things happened:
i) High Losses: Huge inventory with no sales to support.
ii) Decreasing cash: Cash outflow took a sudden plunge as sales went down drastically.
b) Very aggressive expansion into multiple cities and complex website structure.
c) Extremely optimistic about people’s willingness to ditch traditional stores in favor of there dot.com boom.
d) Acute margins due to lack of customers and low sales volumes.
Go through Checklist (before stepping into this niche market segment)
a) Returns on sales.
b) Customer acquisition model.
c) Pricing strategy.
d) Inventory (Warehouses) setup.
Please poll your option(s) on Google survey form: “Online Grocery Retail”
Results are to be announced in next few days.
One of the best articles I’ve read on “Leadership” do read.
Read Ten Leadership shifts that change everything Very insightful blog post with an array of hard facts. I want to re-share the traits leaders must acquire, as cited in the blog, in order to sync with their team efficiently and timely.
Top ten leadership shifts:
- Me to we – humility.
- Doing to delegating – letting go.
- Talk to action – initiative.
- Answers to questions – curiosity.
- Problems to solutions – optimism.
- Past to future – forward focus.
- Control to release – trust.
- Avoiding to addressing – courage.
- Urgent to important – priorities.
- Receiving to giving – service.
As always, I leave you guys with a quotation.
It is better to lead from behind and to put others in front, especially when you celebrate victory when nice things occur. You take the front line when there is danger. Then people will appreciate your leadership – Nelson Mandela
Radio Frequency Identification (or RFID) uses radio-frequency electromagnetic fields to transfer data from a tag attached to an object for the purposes of automatic identification and tracking. Potential is tremendous with large number of usages in various areas raging from omni-channel retailing to healthcare. Let see table stakes it aims to offer in both the areas.
a) Omni-channel marketing:
An approach to track down customers through mobile internet devices, computers, television, and other similar platforms. To make it clear, suppose you like to buy a latest iphone. Today, you can either buy it online or from any nearby outlet. Keep in mind, there may be many retailers/wholesalers, available to you but you can’t just place your order with one and buy from another as each of them have their own separate inventory. But in coming years, you’ll be able to achieve that. Plus, you would get real-time updates including customer reviews, products cost and availability. Without any doubt, it provides a new supply chain and inventory management system.
But how BIG is the market to convert it into a profitable business?
* Mobile internet users by 2015 in Asia – 1.5 Billion (India: 300 Million, China: 700 Million).
* Two-fifths of UK own a smartphone.
* US retail m-commerce sales shot up 81% to nearly $25 Billion last year.
* Worldwide 4% drop in laptop and desktop sales at the end of 2012 and continues to fall.
What these numbers suggest?
i) Merchandise to be more customer centric —- better customer satisfaction and engagement.
ii) Increase in customer retention rate and reach —– increment in sales volumes.
iii) Your company to create more job opportunities —– transforming whole community.
RFID embedded sensors are used by a huge % of medical fraternity nowadays. A patient’s day-to-day medical parameters like blood pressure level, heart-beat rate, sugar level, etc. can be processed and reported into useful data monthly, quarterly or yearly, providing doctors detailed analysis and help them managing their patients in an efficient way. It also provide solution(s) to countless problems mentioned below.
What are its benefits?
1) Patients check-up is faster —– you don’t have to wait long in long queues.
2) Proper tracking of medical equipments and inventory —– decrement in hoarding activities.
3) Eye on medical staff (esp. on working hours) —– more emphasize on patients’ care and health.
What all other global issues it can fix?
i) Large % of no. of births and deaths in low-income and middle-income groups are unregistered.
ii) Understand the source(s) of obesity by comparing data with food products companies (Around 25% Americans and close to 22% Europeans are obese, according to WHO).
RFID implementation, in both the sectors, clearly put forth an opportunity for companies to be big and transformative by changing lives of billions of people worldwide.
Yesterday, I read an article about importance of investments in R&D to manufacture and sell low-cost products or technology in developing markets like India, China and Africa. It emphatically also pointed out troubles to promote such products because of their low customer reach, and lesser brand recognition due to a stiff competition from other well-established consumer products companies. One thing, which caught my eye, was the term “tickle-up innovation“. A total mystery for my knowledge, I decided to Google. Here are my findings and I will try to relate it to you in some or other forms.
First, what is Tickle-up Innovation? (also known as Reverse Innovation) is a practice, which is used first, in developing countries and then sold elsewhere in the world. Traditionally, innovation originates from a developed country, which further moves to a developing markets, if successful. But here life-cycle is reverse, hence the name “Reverse Innovation”. The contrasting point involved is that the products/technology/services, which are a part of it, are created locally in the developing markets.
But what edge does this gives to a local manufacturer?
1) Cut down huge shipment costs.
2) Easy availability of hundreds of low-pay skilled workers.
3) Customer feedback can be obtained and processed much faster and more efficiently.
4) Setup and opportunity costs are considerably lower.
5) Humongous market size to test/pilot any product/technology.
6) Superior customer acquisition model as product developers would mostly be from the country of origin.
Okay. Now comes the part: what all problems it can eradicate by providing a plausible solution. Following is sector-wise analysis:
a ) Food:
High price and Saddled working hours: Life style in developing countries is rougher in comparison with developed countries, thus people tend to miss a daily dose of healthy food or right amount of nutrition (both in rural and urban areas). Costly food further adds misery. Therefore, there is a dire need of a new category of food supplement.
Non-availability of state-of-the-art medical facilities: Paying monthly medical bills isn’t easy. Instruments with high cost and steep power consumption system makes a patient life’s more miserable. Steep power consumption means more electricity requirement, and countries like India, having acute shortage of electricity, ask for efficient and cost-cutting alternatives. To counter such problems many companies are recommending battery based medical devices as a solution.
The Power of Web: Everyone demands it but only few can afford. With mobile internet market size to grow to 300 Million by 2015 in India (and considerably at a higher or same rate in other developing countries) there are only two ways to cash-in the upcoming customers. Either by decreasing prices of smartphone devices or by innovating applications for non-smartphone segment to allow users to access web. The later could be a more cost-effective and plausible solution at this moment. Due to this reason alone, most of the tech companies are investing and betting on cloud computing today.
d) Travel and Transportation:
Easy on pocket, anytime, anywhere: The “mantra” for travel nowadays. Everyone loves to own car but affordability is the biggest issue stopping them from fulfilling their dreams. Projects like Tata Nano aims to fill that bridge, though, is far from a huge success and yet to be tested worldwide, provides ample opportunities for other Auto-manufactures to take a leap in this segment. Also there is a huge requirement for a new day-to-day transportation model, to keep pace with the growing demand and population.
What NEXT?……If it is successful in developing countries, then it can be upgraded for sales in developed world. But that raise questions about whether or not they be able to compete in the top-tier markets (as I pointed out early). This particular concept is called “provenance paradox“. Though, many experts suggest to go for a long-haul then looking for short-term profits and flaunt your country of origin, if you want build your brand for the future, the real deal is yet to be proven.
“Roadmap of business innovation for the world” – Mukesh Ambani
“Essential for global business leaders” – NR Narayana Murthy
“Reverse Innovation explains how innovations are originating from developing countries” – Ratan Tata