Category: retail

Voice assistants and traditional retail

Traditionally, retail was an over-the-counter activity. There was a physical counter between the buyer and the seller, and the buyer would demand what he wanted, and the shopkeeper would hand it over to him. This form of retail gave greater power to the shopkeeper, which meant that brands could practice what can be described as “push marketing”.

Most of the marketing effort would be spent in selling to the shopkeeper and then providing him sufficient incentives to sell it on to the customer. In most cases the customer didn’t have that much of a choice. She would ask for “salt”, for example, and the shopkeeper would give her the brand of salt that benefited him the most to sell.

Sometimes some brands would provide sufficient incentives to the shopkeeper to ensure that similar products from competing brands wouldn’t be stocked at all, ensuring that the customer faced a higher cost of getting those products (going to another shops) if they desired it. Occasionally, such strategies would backfire (a client with extremely strong brand preferences would eschew the shopkeeper who wouldn’t stock these brands). Mostly they worked.

The invention of the supermarket (sometime in the late 1800s, if I remember my research for my book correctly – it followed the concept of set prices) changed the dynamics a little bit. In this scenario, while the retailer continues to do the “shortlisting”, the ultimate decision is in the hands of the customer, who will pick her favourite among the brands on display.

This increases the significance of branding in the minds of the customer. The strongest incentives to retailers won’t work (unless they result in competing brands being wiped out from the shelves – but that comes with a risk) if the customer has a preference for a competing product. At best the retailer can offer these higher-incentive brands better shelf space (eye level as opposed to ankle level, for example).

However, even in traditional over-the-counter retail, branding matters to an extent when there is choice (as I had detailed in an earlier post written several years ago). This is in the instance where the shopkeeper asks the customer which brand she wants, and the customer has to make the choice “blind” without knowing what exactly is available.

I’m reminded of this issue of branding and traditional retail as I try to navigate the Alexa voice assistant. Nowadays there are two ways in which I play music using Spotify – one is the “direct method” from the phone or computer, where I search for a song, a list gets thrown up and I can select which one to play. The other is through Alexa, where I ask for a song and the assistant immediately starts playing it.

With popular songs where there exists a dominant version, using the phone and Alexa give identical results (though there are exceptions to this as well – when I ask Alexa to play Black Sabbath’s Iron Man, it plays the live version which is a bit off). However, when you are looking for songs that have multiple interpretations, you implicitly let Alexa make the decision for you, like a shopkeeper in traditional retail.

So, for example, most popular nursery rhymes have been covered by several groups. Some do the job well, singing the rhymes in the most dominant tunes, and using the most popular versions of the lyrics. Other mangle the tunes, and even the lyrics (like this Indian YouTube channel called Chuchu TV has changed the story of Jack and Jill, to give a “moral” to the story. I’m sure as a teenager you had changed the lyrics of Jack and Jill as well :P).

And in this situation you want more control over which version is played. For most songs I prefer the Little Baby Bum version, while for some others I prefer the Nursery Rhymes 123 version, but there is no “rule”. And this makes it complicate to order songs via Alexa.

More importantly, if you are a music publisher, the usage of Alexa to play on Spotify means that you might be willing to give Spotify greater incentives so that your version of a song comes up on top when a user searches for it.

And when you factor in advertising and concepts such as “paid search” into the picture, the fact that the voice assistants dictate your choices makes the situation very complicated indeed.

I wonder if there’s a good solution to this problem.

Vacation Shopping

This is yet another of those questions whose answer seems rather obvious to everyone, and to me in full hindsight, but which has taken me a long time to appreciate

For a long time I never understood why people shop during vacations, when both time and luggage space are precious commodities. With global trade, I reasoned that most clothes should be available at reasonably comparable prices worldwide, and barring some special needs (such as a certain kind of shoes, for example), there was no real need to shop on vacations.

The last day of our trip to Munich in June convinced me otherwise. That was the only day on the trip that the wife was free from work, and we could go out together before our afternoon flight. The only place we ended up going out to turned out to be a clothing store, where the wife freaked out shopping.

It didn’t make sense to me – she was shopping at a chain store which I was pretty certain that I had seen in London as well. So why did she shop while travelling? And she shopped far more than she does in a normal shopping trip in London.

In hindsight, the answer is rather simple – diversity. While the same stores might exist in various countries or cities, each is adapted to local tastes and prevailing fashions. And while everyone watches the same “runways” in Milan and Los Angeles, there is always a subtle difference in prevailing styles in different places. And clothes in the stores in the respective places are tailored (no pun intended) to these styles.

And it can happen that the local prevailing styles are not something that you particularly agree with. For example, for years together in Bangalore I struggled to find plain “non-faded” jeans – most people there seemed to demand faced or torn jeans, and stores responded to serve that demand (interestingly, jeans shopping in my last Bangalore trip was brilliantly simple, so I guess things have changed).

Similarly, the wife finds it hard to appreciate most dresses in the shops in London (and I appreciate why she doesn’t appreciate them – most of the dresses are a bit weird to put it mildly), and as a result hasn’t been able to shop as much in recent times. She had taken to claim that “they don’t seem to be making normal clothes any more”.

But the styles in London aren’t correlated with the styles in Munich (or elsewhere), with the result that in that one chain store in Munich, she found more nice dresses than she had in some 20 shopping trips over a year in London.

Fashion suffers from the “tyranny of the majority“. It makes eminent sense for retailers to only stock those styles and models that have a reasonably high demand (or be compensated for stocking low-demand items with a high enough margin – I have a chapter on this in my book). So if your styles don’t match with those of people around you, you are out of luck.  But when you travel, you have the chance to align yourself to another majority. And if that alignment happens, you’re in luck!

PS: On a separate note, I’m quite disappointed with the quality of clothes in London. Across brands, they seem to wear much faster than those bought in continental Europe or even in India.

Linearity of loyalty rewards

So I’ve taken to working a lot in cafes nowadays. This is driven by both demand and supply. On the one hand I’ve gotten so used to working for my current primary client from home that I’m unable to think about other work when I’m at home – so stepping away helps.

Also on the demand side is the fact that this summer has been incredibly hot in London – houses here are built to trap in the heat, and any temperature greater than 25 degrees can become intolerable indoors. And given that cafes are largely air-conditioned, that’s an additional reason to step away from home to work.

On the supply side, there are three excellent hipster cafes within 200 meters of my house. Yes, I live in a suburb, though my house is very close to the suburb’s “town centre”. And all all these cafes make brilliant coffee, and provide a really nice ambience to work.

So far I’ve discovered that two of these cafes offer loyalty cards, and given my usage, neither makes a compelling reason to be loyal enough. The “problem” (in terms of retaining my loyalty) is that the loyalty card at both these places offer “linear rewards”.

Harris+Hoole has an app, which offers me a free drink for every six drinks purchased. Electric Coffee has a physical card, which offers me a free drink for every ten drinks I purchase. Now, the rate of reward here (I’m writing this sitting in Electric) is lower, which suggests that I’m better off patronising Harris+Hoole, but some variety doesn’t hurt – also I’m queasy about ending up and parking in the same cafe more than once in a day.

Even when I was writing my book in Barcelona two years ago, I would never go to the same cafe more than once a day, alternating between Sandwichez, Desitjos and this bar whose name I could never figure out.

Ordinarily, if I were a low intensity user, one drink for every N drinks ($math 6 \le N \le 10 $) would have been a sufficient reason to be loyal. Given my rate of consumption, though, and the fact that I go to both these cafes rather often, the incremental benefit in staying loyal to one of these cafes is fairly low. I can peacefully alternate knowing that sooner or later the accumulated ticks on my card or app are going to provide their reward.

It wasn’t like this last year, when I was briefly working for a company in London. Being extremely strapped for time then, I hardly patronised the cafes near home, and so the fact that I had an Electric card meant that I stayed loyal to it for an extended period of time. At my higher level of usage, though, the card simply is not enough!

In other words, rewards to a loyalty program need to be super-linear in order to retain a customer beyond a point. The current linear design can help drive loyalty among irregular customers, but regulars get indifferent. Making the regulars really loyal will require a higher degree (no pun intended ) of rewards.

PS: Given the amount of real estate hours I occupy for every coffee I buy, I’m not sure these cafes have that much of an incentive in keeping me loyal. That said, I occasionally reward them by buying lunch/snacks or even a second coffee on some visits.

PS2: As a consumer, loyalty card versus app doesn’t make that much of a difference – one clutters the wallet while the other clutters the phone (I don’t like to have that many apps). A business, though, should prefer the app, since that will allow them to know customers better. But there’s a higher fixed cost involved in that!

 

A Dying Complex

During a walk through Jayanagar Fourth Block last evening, I happened to walk through the shopping complex. Now, this isn’t something I do normally – while my usual Jayanagar walking route goes along one side of the complex, I seldom cut across it.

As it happened, my wife had asked me to buy coffee powder from a specific shop (from where I’d last bought coffee powder twenty years ago), and the easiest way to get to it after I had remembered to buy coffee was to cut across the Shopping Complex.

And it was dead. In my childhood, I spent most evenings “putting beat” around Jayanagar 4th Block with my parents, and we would invariably go to the shopping complex. The complex was then full of respectable stores, including a HMV outlet, a fairly high end tailoring outlet (called Khanate) and the shop where I bought my first ten pairs of spectacles. It was then natural that a shopping trip to 4th block included a visit to the shopping complex.

Not any more, for the shopping complex is dying, if not dead already. The walls look the same, the shop structures are the same, but most respectable businesses seem to have made their exit from the shopping complex. In their place you have stores selling cheap footwear, cheap clothes, possibly counterfeit goods and suchlike. There aren’t too many “respectable shoppers” in the complex as well.

On the other hand, the area immediately around the now-dying shopping complex has emerged as a brilliant retail destination. You can find large-ish outlets of most major brands, a wide selection of restaurants and stalls, fresh vegetables, hardware stores and yes – shops selling coffee powder! Just that the shopping complex has pretty much died, and faded into insignificance.

Quickly walking through the shopping complex last evening (it didn’t appear that safe), I mulled over why it had died, while the surrounding area had flourished. I have one hypothesis.

Basically the shopping complex is owned by the government, and the rents in the complex didn’t rise along with the market. This meant that businesses that were not exactly flourishing (or sustainable) continued to do business in the complex (low rents meant businesses could afford to be there even when they weren’t doing well). This reduced footfalls, and reduced business for the relatively healthy businesses. Which again didn’t move out because they could still make the rent.

And so the shopping complex went through a downward spiral until the point when businesses that had chosen to remain got crowded out by less respectable ones, and figured it was time to move out even if the rent wasn’t much. And so you have some of the prime real estate in Jayanagar being squatted upon by sellers of cheap footwear and cheap clothes and electronics of suspect make.

Patanjali going online

Mint has a piece on Baba Ramdev-led FMCG company Patanjali going online to further its sales.

Some may have seen the irony in Patanjali Ayurved Ltd tying up with foreign-owned/funded e-commerce companies, even as it swears to end the reign of foreign-owned consumer brands in the market.

Patanjali is only being pragmatic in doing what’s good for its own business, of being available where the consumers are. Its decision is one more pointer to the growing importance of e-commerce as a distribution channel for packaged consumer goods.

I have an entire chapter in my book dedicated to this – about the internet has revolutionised distribution and retail. In that I talk about Dollar Shave Club, pickle sellers from Sringeri and mobile manufacturers such as Xiaomi who have pioneered the “flash sale” concept. In another part of the book, I’ve written about how Amazon has revolutionised bookselling, first by selling online and then by pioneering e-books.

Whenever a new consumer goods company wants to set up shop, one of the hardest tasks is in establishing a distribution network. Conventional distribution networks are typically several layers deep, and in order to get to the customer, each layer of the distribution network needs to be adequately compensated.

Apart from the monetary cost, there is also the transaction cost of convincing each layer that it is worthwhile carrying the new seller’s goods. The other factor to be considered is that distributors at various levels are in a sense loyal to incumbent sellers (since they are responsible for a large portion of the current business), making it harder for new seller to break through.

The advantage with online retailers is that they compress the supply chain, with one entity replacing a whole network of distributors. This may not necessarily be cost-effective from the money perspective, since the online retailers will seek to capture all the value that all the layers of the current distribution chain are capturing. However, in terms of transaction costs it is significantly easier since there is only one layer to get past, and online retailers seldom have loyalty or exclusive relationships.

In fact, the size and bargaining power of online retailers (vis-a-vis offline distributors) means that if there is an exclusive relationship, it is the retailer who holds the exclusive rights and not the seller.

In Patanjali’s case, they have already established a wide offline network with exclusive stores and partnerships, but my sense is that they seem to be hitting the limits of distribution. Thanks to Baba Ramdev’s popularity as a yoga guru, Patanjali enjoys strong brand recall, and it appears as if their distribution is unable to keep pace with their brand.

From this perspective, going online (through Amazon/Flipkart) is a rational strategy for them since with one deal they get significantly higher distribution power. Moreover, being a new brand, they don’t have legacy distributors who might get pissed off if they go online (this is a problem that the Unilevers of the world face).

So it is indeed a pragmatic decision by Patanjali to take the online route. And after all, in the end, sheer commerce can trump nationalist tendencies and xenophobia.

British retail strategy

Right under where I currently live, there’s a Waitrose. Next door, there’s a Tesco Express. And a little down the road, there’s a Sainsbury Local. The day I got here, a week ago, I drove myself nuts trying to figure out which of these stores is the cheapest.

And after one week of random primary research, I think I have the classic economist’s answer – it depends. On what I’m looking to buy that is.

Each of these chains has built a reputation of sourcing excellent products and selling them to customers at a cheap price. The only thing is that each of them does it on a different kind of products. So there is a set of products that Tesco is easily the cheapest at, but the chain compensates for this by selling other products for a higher rate. It is similar with the other chains.

Some research I read a year or two back showed that while Amazon was easily the cheapest retailer in the US for big-ticket purchases, their prices for other less price-sensitive items was not as competitive. In other words, Amazon let go of the margin on high-publicity goods, and made up for it on goods where customers didn’t notice as much.

It’s the same with British retailers – each of their claims of being the cheapest is true, but that applies only to a section of the products. And by sacrificing the margin on these products, they manage to attract a sufficient number of customers to their stores, who also buy other stuff that is not as competitively priced!

Now, it is possible for an intelligent customer to conduct deep research and figure out the cheapest shop for each stock keeping unit. The lack of quick patterns of who is cheap for what, however, means that the cost of such research and visiting multiple shops usually far exceeds the benefits of buying everything from the cheapest source.

I must mention that this approach may not apply in online retail where at the point of browsing a customer is not “stuck” to any particular shop (unlike in offline where a customer is at a physical store location while browsing).

Variable pricing need not be boring at all!

Pizza from dominos – good and bad

Last night we decided we wanted pizza from dominos for dinner. Having been used to Swiggy, I instinctively googled for dominos and tried to place the order online.

There is one major fuckup with the dominos website – it asks you to pick the retail outlet closest to you, rather than taking your location and picking it yourself. And so it happened that we picked an outlet not closest to us.

I quickly got a call from the guy at the outlet where my order had gone, expressing his inability to deliver it, and saying he’ll cancel my order. I gave him a mouthful – it’s 2016, and why couldn’t he have simply transferred the order to the outlet that is supposed to service me?

I was considering cancelling the order and not ordering again (a self-injurious move, since we wanted Dominos pizza, not just pizza), when the guy from the outlet in whose coverage area I fell called. He explained the situation once again, saying my original order was to be cancelled, and he would have to take a new order.

Again – it wasn’t just a fuckup in the payment in the Dominos system, in which case they could’ve simply transferred my order to this new guy. So I had to repeat my entire order once again to this guy (not so much of a problem since I was only getting one pizza) and my address as well (it’s a long address which I prefer filling online).

Then there was the small matter of payment – one reason I’d ordered online was that I could pay electronically (I used PayTM). When I asked him if I could pay online for the new order he said I had to repeat the entire process of online ordering – there was no order ID against which I could simply logon and pay.

I played my trump card at this time – asked him to make sure the delivery guy had change for Rs. 2000 (I’d lined up at a bank 2 weeks back and withdrawn a month’s worth of cash, only that it was all in Rs. 2000 notes). He instantly agreed. Half an hour later, the pizza, along with change for Rs. 2000 was at my door.

The good thing about the experience was that the delivery process was smooth, and more importantly, the outlet where my order reached had taken initiative in communicating it to the outlet under whose coverage my house fell – the salespersons weren’t willing to take a chance to miss a sale that had fallen at their door.

The bad thing is that Jubilant Foodworks’ technology sucks, big time. Thanks to the heavily funded and highly unprofitable startups we usually order from, we’re used to a high level of technology from the food delivery kind of businesses. Given that Jubilant is a highly profitable company it shouldn’t be too hard for them to license the software of one of these new so-called “foodtech” companies to further enhance the experience.

No clue why they haven’t done it yet!

PS: I realise I’ve written this blogpost in the style I used to write in over a decade ago. Some habits die hard.

Buying, Trying and Sizing

The traditional paradigm of apparel purchase has been to try and then buy. You visit a retail store, pick what you like, try them out in the store’s dressing rooms and then buy a subset. In this paradigm, it is okay for sizing to not be standardised, since how the garment actually fits on you plays a larger part in your decision making than how it is supposed to fit on you.

With the coming of online retail, however, this paradigm is being reversed, since here you first buy, and then try, and then return the garment if it doesn’t fit properly. This time, the transaction cost of returning a garment is much higher than in the offline retail case.

So I hope that with online retail gaining currency in apparel purchase, manufacturers will start paying more attention to standardised sizing, and make sure that a garment’s dimensions are exactly what is mentioned on the online retailer’s site.

The question is who should take the lead on enforcing this. It cannot be the manufacturer, for had they been concerned already about standardised sizing, they would’ve implemented it already. So far the retailer has only been an intermediary (a “pipe”, as Sangeet would put it).

However, with the transaction cost of failed transactions being borne by the retailers, and these transaction costs being rather high in online retail, I expect the likes of Amazon and Myntra to take the lead in ensuring that sizing is standardised, perhaps by pushing up the ease of search of garments from manufacturers who already practice such sizing (these retailers have sufficient data to measure this easily).

It will be interesting to see how this plays out. Given history, I don’t expect retailers to collaborate in coming up this a standard. So assuming each major online retailer comes up with its own standard, the question is if it will start off being uniform or if it will converge to a common standard over time.

I also wonder if the lead in standardising sizes will be taken by private brands of the online retailers, since they have the most skin in the game in terms of costs, before other manufacturers will follow suit.

In any case, I trust that soon (how “soon” that soon is is questionable) I’ll be able to just look at the stated sizing on a garment and buy it (if it’s of my liking) without wondering how well it’ll fit me.

Shopping offline can be underwhelming

Maybe to compensate for the amount I’ve been buying on Amazon over the last few days (mostly baby stuff), I set off on Sunday to buy some stuff offline. And it was a most disappointing experience.

The biggest problem was the lack of choice and availability and inventory. I first went to a Levi’s showroom to buy a pair of jeans, having ripped three of them in the course of the last year (thanks to squatting I’m guessing).

I asked for comfort fit jeans and was shown a pair. Was rather underwhelming and I asked for more. Turned out that was the only pair of comfort fit jeans in the store.

And then I was looking to buy a pair of shorts. At least three stores on Jayanagar 11th Main Road were visited, only to be told none of them stocked shorts (Levi’s, Wills Lifestyle, Woodlands). I might have cribbed about lack of effective categorisation in online shopping but it’s a more acute problem offline, given the transaction cost of going to a store.

On Jayanagar 11th Main Road, for example, you have brand stores of every conceivable brand, but few stores have chosen to differentiate themselves by what they sell, rather than what brand. So you lack stores that specialise in shorts, or T-shirts, and so on.

For a while now I’ve been looking for a new pair of spectacles (hate my current frame, so I end up wearing contact lenses even when I don’t want to). GKB offered some choice, but nothing spectacular. SR Gopal Rao said they didn’t have large size frames, and had no clue when they’d arrive.

And there ended my shopping trip. The only things I’d been successful buying was a packet of freshly made rusks from a bakery (feel damn lucky most bakeries in Bangalore have in-house kitchen where they bake stuff fresh) and some medicines.

When your demands run into the so-called “long tail”, I guess nowadays online is the best bet. So I’ll possibly buy another pair of jeans online, having bought one pair from Korra and returned a pair to Amazon. I don’t normally buy clothes online, but on other tabs of my browser I’m checking out shorts on Amazon.

Oh, and I must mention Lenskart, who might end up getting an order for a pair of spectacles. They’ve set up what I call “experience centres” where you can check out their range of frames and try them on. Orders are fulfilled through their online store, since prescription glasses cannot be sold over the counter anyway (since the glasses need to be ground). I strongly believe that this is how retail will shape out in the future.

Sweetshop optimisation on festival days

As I mentioned in my earlier post, while Varamahalakshmi Vrata is considered rather minor in my family, it is a rather big deal in my wife’s house. So I headed to a nearby sweetshop called Mane hOLige to fetch sweets for today’s lunch.

Now, this is not a generic sweetshop. As the name suggests, the shop specialises in making hOLige, also known as obbaTT, which is a kind of sweet stuffed flatbread popular in Karnataka and surrounding areas. And as the menu above suggests, this shop makes hOLige (I’ll use that word since the shop uses it, though I’m normally use to calling it “obbaTT”).

I had been to the shop last Sunday to pick up hOLige for a family gettogether, and since I asked for the rather esoteric “50-50 hOLige”, I had to wait for about 30 minutes before it was freshly made and handed over (Sunday also happened to be yet another minor festival called “naagar panchami”).

Perhaps learning from that experience, when heightened demands led to long wait times for customers, the sweetshop decided to modify its operations a little bit today, which I’m impressed enough to blog about.

Now, as the subtitle on the board above says, the shop specialises in “hot live hOLige”. They are presumably not taking VC funding, else I’d imagine they’d call it “on demand hOLige”. You place an order, and the hOLige is made “to order” and then handed to you (either in a paper plate or in an aluminium foil bag, if you’re taking it away). There is one large griddle on which the hOliges are panfried, and I presume the capacity of that griddle has been determined by keeping in mind the average “live” demand.

On a day like Sunday (naagar panchami), though, their calculations all went awry, in the wake of high demand. A serious backlog built up, leading to a crowded shopfront and irate customers (their normal rate of sale doesn’t warrant the setting up of a formal queue). With a bigger festival on today (as I mentioned earlier, Varamahalakshmi Vrata is big enough to be a school holiday. Naagar panchami doesn’t even merit that), the supply chain would get even more messed up if they had not changed their operations for the day.

So, for starters, they decided to cut variety. Rather than offer the 20 different kinds of hOLige they normally offer, they decided to react to the higher demand by restricting choice to two varieties (coconut and dal, the the most popular, and “normal” varieties of hOLige). This meant that demand for each variety got aggregated, and reduced volatility, which meant that…

They could maintain inventory. In the wake of the festival, and consequent high demand, today, they dispensed with the “hot, live” part of their description, and started making the hOLiges to stock (they basically figured out that availability and quick turnaround time were more important than the ‘live’ part today).

And the way they managed the stock was also intelligent. As I had mentioned earlier, some customers prefer to eat the hOLige on the footpath in front of the store, while others (a large majority) prefer to take it away. The store basically decided that it was important to serve fresh hot hOLige to those that were consuming it right there, but there was no such compulsion for the takeaway – after all the hOLige would cool down by the time the latter customers went home.

And so, as I handed over my token and waited (there was still a small wait), I saw people who had asked for hOLige on a plate getting it straight off the griddle. Mine was put into two aluminium foil bags somewhere in the back of the store – presumably stock they’d made earlier that morning.

Rather simple stuff overall, I know, but I’m impressed enough with the ops for it to merit mention on this blog!

Oh, and the hOLige was excellent today, as usual I must say! (my personal favourite there is 50-50 hOLige, if you want to know)