Would Pricing alone entice Customers?

This is my 21^st year in Retail and I am still not amused that the Indian consumer’s love for discounted prices has never waned. Back in the late 90s when I first encountered a modern Retail outlet at Mandaveli at South Madras where my mother sent me to check out the new Store since the Sugar that was sold there was cheaper and of better quality than at the Ration Shop we would buy regularly, I was quite amazed at the whole set-up. It was a nice shop on RK Mutt Road with a bold red signage and white font which read “Subiksha” meaning prosperity in Sanskrit language. That the Indian Consumer has been price-conscious is known, but what’s interesting that almost all products in the country is today is sold at MRP – of course there are exceptions.  In categories like Electronics, the concept of Maximum Retail Price is just for Statutory Prices – to satisfy the Tax authorities. It’s been more than a decade since Electronic items were sold on MRP, barring new releases of Mobile Phones – Apple retains MRP for quite a long time since launching new product ranges while most other Brands cannot and do not retain MRP for more than 2 weeks since launch. 

In Fast Moving Consumer Goods (FMCG), MRP has always existed and will remain so, thanks to the MRP Act which governs pricing of consumer products. However, most Retailers of all sizes – S, M, L or XL or XXL (pun intended) offer or atleast promise to offer products below MRP. Subiksha’s initial success was due to a Brand promise that “Every product was priced below MRP” including Medicines which was an instant hit. The Retailer carefully priced products a rupee or more below – but at least One rupee lower than MRP which was a rarity those days. Even Kiranas wouldn’t reduce so much from the price of products, however would offer credit to consumers which was the first example of ensuring “Customer stickiness” a buzzword today. Over the years, most other Retailers have played on the Price and used it to their advantage. India’s first organized Grocery Retailer Foodworld had exciting price-offs on special days and this would draw crowds to the stores. Foodworld also launched Private Label products – “different cover, same product” which was cheaper by 10-20% across Spices, Ketchups and so on. A few years later, Food Bazaar came up with the premise of EDLP, a term coined originally by Sears in the 1960s USA which was popularised by Wal-Mart later on. 

Every Day Lower Price by Food Bazaar meant that there was no need for the consumer to worry about price change gimmicks; prices were low every day on a whole lot of items which kept / and keeps driving footfalls to the stores till date. On 26 Jan. 2006, Big Bazaar celebrated “Maha Bachhat Day” or “Big Savings Day” which was sort of similar to Black Friday and Thanksgiving weekend shopping in the West. The result was overwhelming and the Retailer has steadily increased it to 3-4 days now culminating with a weekend. In 2012, Flipkart ran “Big Billion Day” which was a runaway hit while also upset thousands of customers because they couldn’t get their hands on many products which were sold out in seconds and the delivery of products took more time than usual. Proof, that Indian consumers are extremely price-sensitive and will embrace price offers all the time. While this article is mainly focussed on Grocery, the competitive / discounted pricing works for every other product that’s sold in retail – from Agarbathis to Audi Cars, Furniture to Apartments (sans GST, as they advertise!).

I happened to visit D-Mart at Salem in Tamil Nadu, India this week. I have visited one of their outlets in Mumbai 8 years before while exploring setting up CCD within their premises. I was awed by their offering. Almost every product was on discount – below MRP to be precise. No crazy promos, no confusing promotions, buy this and get that and so on. Simple, straightforward discounts as we Consumers like it. In no time, I was carrying a basket and when I went to the Billing counter, I was informed by the girl I was to pay Rs. 901. Unbelievable that I picked so many things. But frankly, there was more to do than pricing which stuck me – the store was spic and span. For a grocery cum Hypermarket in a Tier 2 town with a population of less than 20 lakh population, that was surprising. The girl, when I asked said the store was seven months old and is filled up to the brim on the weekends with Customers shopping till late in to the night after the city is shut. Says something about us.

H for Hyperlocal Retailing

One of the most used and abused words for the past 3-4 years in E-Commerce in India and all over the world is “Hyperlocal”. What exactly is Hyperlocal retailing? How does it help customers? What value addition does it provide to Retailers? Is it a viable business option? Let’s explore.

The Indian Retail Industry is estimated at $500 billion with over 1.30 billion people in the country. Out of this less than 12-15% is Organized while the rest remains with traditional businesses such as Kirana Stores, Mom & Pop stores, road side vendors, etc. While Retail has seen a CAGR of over 15% over the past decade, it is E-commerce that has grown leaps and bounds in the recent decade, thanks to Wall Street Funded companies who morphed themselves from being mere technology companies to retail behemoths that they are today. Within the E-Commerce Retail Startups as well as a few established ones, Hyperlocal Players are the buzz of the day, what with a new one commencing operations every day for another that shuts down almost every day.

So what is Hyperlocal?

The term has been coined to connect offline retailers in a locality to customers in the same locality, but through digital means. This is nothing new, honestly. Through the late 90s (in India) when we witnessed the highest landline telephone penetration, it was common for customers to call a nearby Retail store and request them to deliver products for immediate use. During the early & mid-2000s, it was the mobile phone boom where household maids, servicemen like Plumbers, Electricians, Carpenters and many more were available over a call. The world seem to be lot more connected and we all loved it.

It was early 2014 and we saw a slew of technology companies building websites and mobile apps that connected customers to shops and service providers over a click of the button. Honestly, this was nothing new compared to what “Just Dial” and “Yellow Pages” were already doing. Even neighborhood newspapers were in a way Hyperlocal, connecting local services and people to customers in a particular locality especially for finding rental accomodations.

It is quite amazing to see that Hyperlocal has suddenly become a billion dollar opportunity with a lot of Investors throwing money at such start-ups. Most of the large Hyperlocal companies that took heavy funding have left the space, notable among them being “Ask Me” which had not only shut down a few months back but also headed in to legal troubles with outstanding payments.

Hyperlocal is a very simple business idea that has been complicated a lot with too much of technology being pushed on to the customers. A mere signage at the

Retail stores (the ones Zomato put up initially) bring a lot of visibility and access to customers. The startups pick from the nearest store and deliver to customers in the shortest possible time thereby increasing merchandise offtake for Retailers. Sometime, it is the simplest task that is complicated the most. Hyperlocal Retail is one such example.

How does Hyperlocal Apps work?

Hyperlocal Apps connect nearby stores and service providers on their app and act as an aggregator. When a customer looks for a product or service, the offering in the neighborhood shows up usually with a cost / time attached to it. For example, if a user is looking for a carpenter, the app shows how much time it would take for the Carpenter to arrive and also the cost per hour / relevant charges. Similarly, when a customer is looking to order tomatoes or rice bags, vegetables or household articles, the app would show up the product, their prices and estimated time of delivery and convenience charges, etc. It is a presumption while building a Business Plan for a Hyperlocal App that such customers will continue to order from the app regularly while also adding new customers everyday. And over time, the App keeps adding more and more retail partners and service providers while also expanding the geographies served.

Is Hyperlocal viable?

Trust me, it is viable. I have done the maths and it is actually possible to make money with a Hyperlocal App. They key here is not the idea or the strategy but the execution. With my own Hyperlocal app Oyethere, I have experimented various means through which we reach out to existing and prospective customers. While both are tough (meaning retaining & adding customers), it is quite possible to get the business going through innovative ways of sales outreach. For this, we need the unstinted support of the Retail Store, which is the key in making a Hyperlocal App successful. Most times, we have seen Hyperlocal App companies splurge on mainstream media and attract a lot of PR while the business remains in the lurch due to execution issues. At a unit level, the app makes a margin from the Retailer, so while the volumes increase, there is a business break-even. The only challenge here is how much to “invest” in acquiring and retaining the customer and controlling overall marketing spends.

Are Offline Retailers ready for Hyperlocal?

At the face of it, Retailers do not support Hyperlocal Apps because they believe the proposed digital marketplace is lethal and could do a lot of harm to their businesses. But it is not. When a customer looks up a product on the app, they would merely choose the one that suits their need – Brand / Retailer-connect, Time of Delivery, cost of the products and convenience. If the Retailer doesn’t stand up to all these measures and based on a permutation by the customer, the choice of Retailer varies and there are chances that a few non-performing ones may get pushed back. Indeed, it is quite interesting that a few Retailers are experimenting Hyperlocal. Food Bazaar and Hypercity work closely with Amazon Now; Heritage Fresh and Spencers have their own Apps which is being tested in a few markets. However, aggregating Kirans remains the biggest opportunity here while the greater challenge is that they do not make enough margins to be shared with the App aggregator. The same applies for Service Providers on apps like Urban Clap.

The market is ready, just waiting for Retailers to catch-up on them. Let’s hope.