Archive for January, 2009

Changing Face of DIY Markets

Tuesday, January 27th, 2009

A year ago, I was pleasantly surprised to find that I could ‘outsource’ ironing of my clothes in London. A few years ago, it was un-imaginable to find someone to provide such services at whatever cost. Whereas this time, I had a person come home to collect the clothes, iron them, and home-deliver them the next day – and at very affordable rates! I’d heard similar experiences from others looking for plumbing, painting and domestic-moving services. It looks like traditional DIY markets like the UK are undergoing sea changes.

Recent experience indicates that so are traditional “Never DIY” markets like India. Of late, it has become very difficult to get plumbers and electricians for doing small household repair and installation jobs. Does this indicate a severe shortage of supply in comparison to demand? I don’t think so, because whenever demand outstrips supply, prices tend to shoot up. This hasn’t happened — because whenever you do manage to find someone, they don’t charge disproportionately high rates.

Instead, the disorganized state of the household services market in India is the likely explanation for whatever is happening. You call an electrician today, he tells you he’ll turn up tomorrow. The next day, someone else calls him, he goes to their house immediately, forgetting then and later that he’d committed to visit yours! In other words, while there is enough supply to meet the demand, there is a lack of a mechanism to match the two and schedule supply against demand. Normally, market-makers jump in to streamline things in such markets. This seems to be already happening in the household services market, judging by the number of ads for wannabe market-makers who operate with nothing more than a telephone number or a website listing. You just have to log your requirements with the market-maker, they are supposed to route it to a service provider who fulfills them.

Have the present day market-makers made a significant difference to buyers? Can buyers log a requirement with a market-maker and rest assured that a service provider will arrive on the promised day to carry out the job?

Unfortunately, no. I recently came across a market-maker for household services on an online portal. I logged my requirement for some electrical work. In response, I got a long list of electrical shops with the respective telephone numbers. The portal promised that one of these electricians would call me back in the next 1-2 days to arrange next steps. But, in the same breath, they also advised me to call the electricians if I didn’t hear from them after three days. As it turned out, not a single electrician called me. It was obvious that the market-maker had no influence or control over the network of electricians listed in their directory. As a result, they were of no use to me compared to a telephone book.

We can expect professionalization of this market only if these wannabe market-makers come to grip with their customers’ true expectations and gear themselves up to perform a true market-maker’s job. The entry of a large business house could also change the way this business operates.

Or, it is possible that my explanation is wrong. If demand outstripping supply is the real reason behind the current state of affairs, then India might quickly turn from a traditional Non-DIY to a DIY market!

How Can Indian Organized Retail Win Round 2?

Tuesday, January 20th, 2009

Recent news reports have declared that organized retail in India has lost the first round to kirana stores (which are the Indian version of mom-and-pop stores). Reasons for this include certain unique services provided by kirana stores like free credit and free home delivery. Also, with people cutting back on their expenses in these days of recession, they are reportedly avoiding malls and supermarkets for fear of overspending at those places.

Trying to bridge the gulf with kirana stores on these factors will worsen retailers’ already strained bottomlines without any guarantee of improvement to their toplines. Instead, by taking a cue from developed markets, organized retail can win Round 2 by implementing a few best practices that will improve their toplines without necessarily impacting their bottomlines.

A tendency to overspend at supermarkets is not unique to India. Retailers in developed markets still manage to pull in customers by using compensatory measures like loyalty points, gifts and cashbacks.

By introducing separate checkout counters for five items or fewer, organized retail can encourage visits from their loyal customers who otherwise find it too painful to visit supermarkets for small purchases because of long checkout queues occupied by weekly and monthly shoppers — especially when the alternative is a quick telephone call from their homes to their local kirana stores and free delivery in the next few minutes. Fast checkout counters are likely to be particularly effective now when many kirana stores are considering introducing a delivery charge for home delivery of small orders.

Prepaid cards for convenience are commonplace. A leading retailer’s positioning of its newly launched prepaid card around cost containment is novel and should help it to stanch the flow of its customers to kirana stores to avoid overspending. But, for wider adoption, prepaid cards must offer some tangible customer benefit — like discounts. After all, isn’t it unfair to ask someone to fork out a lot of money upfront but make them pay the same price at the till as compared to someone else paying by cash or (worse still) by credit card?

One area where I’ve seen organized retail operate in a drastically different manner in India as compared to developed markets is in the area of house brands (also called private retail labels). For the uninitiated, house brands are those fast moving items like soaps and detergents you see packaged in bland white boxes bearing the supermarket’s own brand name. I was shocked to learn that house brands in India are priced almost the same as leading brands. To me, this defeats the basic purpose of house brands, which is to attract shoppers with significantly low prices, at the same time yielding decent margins to the retailer on account of lower manufacturing, packaging and advertising costs for house brands. History is full of examples of leading retailers like Walmart and Aldi using house brands to change the rules of the game for the packaged goods industry. Given that kirana stores cannot create their own house brands, supermarkets enjoy a major advantage over them if they price their house brands more realistically. With recent price cuts making house brands around 15-20% cheaper than leading brands, organized retail has started moving in the right direction. Time will tell whether the price difference has to be still greater. Internationally, they’re around 40-50%. Of course, supermarkets will have to provide their customers with good enough reasons to ensure that the quality of their house brands is not inferior to that of the leading brands. But, this is not a new challenge and Indian organized retail can learn a few lessons from their counterparts in the developed world.     

Organized retail has lamented about high pilferage as one debilitating factor in its round one loss to kirana stores. While latest technology solutions like RFID-tagging can help bring down pilferage to some extent, it’s not clear at what cost and whether organized retail will ever become free from pilferage. For, to quote a FORTUNE magazine article on Walmart, “If the pilferage from Wal-Mart were incorporated into a separate company, that company would rank 276 on the FORTUNE 500 list”.

Balancing Speed-to-Market With Robustness Considerations

Saturday, January 3rd, 2009

For many years now, I’m a highly satisfied user of LIC’s website for making online premium payments for my insurance policies. For those of you who don’t know, LIC or Life Insurance Corporation of India is a public sector corporation and India’s largest life insurance provider. This website works like a standard online bill payment site, so I’ll skip some of the basic steps. Suffice to mention that, when you select the bank from where you’d like to make your payment, LIC’s website hands over control to a third-party bill payment aggregator called BillDesk (similar to eBillMe in the US and iDEAL in the Netherlands) which passes the policy and premium information to your chosen bank’s Internet Banking website. After you authorize the payment by authenticating yourself to your bank’s Internet Banking website like you’d do normally, BillDesk takes you back to LIC’s website. Assuming that your payment was successful, LIC’s website automatically displays the receipt and lets you download it as a PDF and take a printout.

In over 30 times that I must have used LIC’s website in the last three years or so, there hasn’t been a single case of failed payment (knock on wood!).  

I cannot ascribe this track record to any private sector bill payment websites I’ve used during this period. My experience with them ranges from barely-passable to disastrous.

Take the case of a leading private sector broadband provider. Their online bill payment website used to be so unstable that I gave up trying to use it and went back to making payments by checks.

With another leading private sector telecom company, my experience was worse. For the first few months, everything was working smoothly with their online bill payment website. Then, suddenly, the telco canceled my service one day, claiming that they hadn’t received my payment for that month. When I pointed out to them that I’d received a ‘payment successful’ message from the payment gateway when I’d made the payment a couple of weeks before, they didn’t budge. I even offered to fax them a copy of my credit card statement displaying a debit entry for the said amount. Even then they refused to relent. Instead, they told me to pay the bill again if I wanted my service restored, then go to the payment gateway or my credit card issuing bank to claim a refund. I was so put off by this experience that, let alone online bill payment, I terminated my entire relationship with this telco.

Over two years ago, I’d written a blog post about shopping cart abandonment in a famous book e-tailer’s website. Since I faced this problem as recently as one month ago, I assume that they haven’t fixed this problem yet.

Contrast that with Indian Railways’ IRCTC ticket reservation website. Rated as the largest e-commerce website in Asia by transaction volumes, enough has been written commending IRCTC for webifying what is otherwise a painful process of standing in long queues for hours in dingy railway stations, and for its ingenuity in handling close to ten ticketing classes, over 80 quotas and a host of other complexites in Indian Railways’ ticketing process. But, since the subject matter of this blog post is robustness, I’ll steer clear from all that. 

Instead, let me only say one thing: there has never been a case of “abandoned shopping cart” in the last 5-6 years that my family and I have used the IRCTC website to book close to 100 tickets. Only once, when our Internet connection broke midway through the payment authorization process, we had to repeat the process. Since there was the possibility of payment happening twice, we were planning to contact IRCTC to inquire about this.  Beauty was, before we contacted IRCTC, they emailed us saying they suspected a duplicate payment and were investigating it. They went on to assure us that, if indeed there was a duplicate payment, they’d credit it back my credit card account very soon. As it turned out, there was a duplicate payment. Without me having to do any follow-up, we got the refund within a very reasonable period.

Not just superior customer service processes, this incident illustrates the robustness of IRCTC’s payment integration technology.

A couple of days ago, I happened to use the UK government’s HMRC website to file my tax returns for the past two years I’d been working and living in the UK. Usability wise, this website was fantastic: it made what is inherently a long and tedious process as painless as possible. But, since robustness is our theme, let me not digress. As readers may recall, due to the breakage in undersea cable near Egypt a couple of weeks ago, there has been a lot of disruption in Internet service of late. Maybe because of this, my connection to the HMRC website kept breaking many times before I could complete filing the return. Despite this, the website never lost any data that I’d previously entered. I didn’t have to retype anything.

Yet another example of a robust government web application.

These experiences make me wonder if robustness is given adequate consideration in the race for speed-to-market that characterizes many web transformation initiatives, especially the ones in the private sector. After all, what’s the point in launching an online bill payment website a few days or weeks (or even months) earlier, if customers find its behavior unstable, and either go back to writing checks or, worse still, break off their relationships with the service provider altogether?

Perhaps the leading Swiss watchmaker Patek Philippe does have a point when it says in its ads, “if a certain watch movement takes 48 days to make, we will take 48 days to make it”.