ROHIT NAUTIYAL

One fine Sunday morning, 29-year-old

Nishant Malhotra woke up to non-stop
message beeps from his smartphone.
Irritated, hepickeduphisphone. Thefirst
SMS read, Stop everything and start
shopping: Get extra 40 per cent off only
today; 900-plusproducts. CodeWOW40.
WhilethisoffercamefromGurgaon-based
online shopping portal Jabong, the next
messagehecheckedhadinformationona
similarpromotional offerrunningonfash-
ion portal Myntra. There were myriad
SMSes froma handful of other shopping
portalsurginghimtomakethemost of his
day-off fromoffice.
Malhotra, an avid online shopper,
began his Sunday early but without a
whimper of protest.
A
s the next phase of consoli-
dation kicks in with
Flipkarts acquisition of
Myntra, e-commerce com-
panies realise that the one
metricthat will helpthemachievegrowth
is focusing on revenue per visit or RPV,
which is a combination of the conversion
rate on the website and the average order
value. Mind you, this is one step ahead of
the single-minded focus on conversion
rate visible at the time when the e-com-
merceindustrywasstill young. Thesmart
onesknowthat whiletheycouldprobably
double their conversion rate by cutting
all prices in half, this would likely have a
negative impact on the bottomline by
reducing the overall revenue generated.
Watching revenue per visit ensures that
the host site is increasing the rate of con-
version without compromising revenue.
Leading e-commerce companies like
Flipkart, Myntra, JabongandFabFurnish
already claim they are shipping around
two to three and in some cases up to five
products for each order received on their
website. The whole idea is based on sim-
ple math really. Experts peg the cost of
acquiring a customer by e-commerce
companies has come down at `300,
downfrom`1,000twoyearsbackwhile
the cost of servicing an order has gone
up with an increase in manpower and
infrastructure costs. Says Ravi Vora,
senior vice-president, marketing,
Flipkart, There is enough noise about
onlineshoppingtodayandthebest part is
that each player is not required to put
effortsseparatelytodrawattention. Today
more than 60 per cent of shoppers on
Flipkart are repeat customers.
In such a situation what will separate
the men from the boys will be the way a
player clubshisofferingsandservicesthe
last mile to make the whole process more
efficient. Praveen Bhadada, senior direc-
tor at Zinnov, believes, Analytics will
decidetheprospectsof growthfor e-com-
merce players. In other words, how well
afirmknows whoits customers are, what
theywant andhowtourgethemtospend
more every time they walk into an online
store is key. And what will arm online
store managers with this knowledge is
customer data harnessed from the web-
site and other sources and crunched and
put in a shape that helps in customising
each offering.
Discountsarejuicier thanever
Coming back to the point on driving vol-
umes by offering discounts, many play-
ers have a similar discount strategy: lure
customers into spending a fixed amount
of money by dangling the juicy bone of
high discounts, sometimes up to 50 per
cent. Now there are two ways of offering
discounts. One is the old school general
sale in which every consumer gets a
fixed discount at a certain point in a
given category. The other, and the more
new way, is about creating different cat-
alogues for different customers. To put it
simply, a catalogue sale is an occasional
deal available on a given assortment for
a stipulated time period. For example on
June 23 both Myntra and Jabong ran a
discount deal of 40 per cent on a set of
products compiled in one catalogue.
Says Praveen Shah, co-founder and
managing director, When we give
incentives to shoppers, the chances of
repeat purchase go up significantly.
FabFurnish follows a variant of the
ticket-size principle to design discounts
and drive volumes. The company claims
that currently the average number of
items on a shopping basket is two/three.
Thebaskets aredividedas furniture and
non-furniture. While the average order
size of a furniture basket is around
`10,000, non-furniture basket, which
may include bed and bath, dcor, light-
ing, kids and baby products etc stands
at `3,500. In the last two years,
FabFurnish has tweaked its discount
strategycompletely. If earlier it was offer-
ing discounts based on the ticket size
that is, thehigher theticket thebigger the
discount now it has fashioned lucra-
tiveoffers onsmaller ticket prices as well.
Alongside, it has chased this set of
buyersrelentlesslybyimprovingitsprod-
uct recommendations. The principle of
recommendation works like this: Apart
from suggesting brands and offers, the
site will also prompt other categories of
products that a buyer could buy along
with the original product on the list to
avail of an extra discount. The results,
the site claims, are as expected. About
30 per cent of the shoppers clicked on
the recommendations and conversion
rate went up by 20 per cent. Says
FabFurnish co-founder Vikram Chopra,
If one does not put some constraint on
theorder value, therevenuewill godown.
Also, it is the best way of increasing the
number of items per basket.
To drive volumes and cross-category
impulse purchase, Myntra has been run-
ning what it calls basket promotions for
a year now. Says the companys COO
Ganesh Subramanian,
Picture a scenario in
which a consumer has come
on the website to buy two prod-
ucts. After making the selection her
order value comes to `X. By adding one
more product of lesser value, she will be
able to claim a Y per cent discount on her
order. In most of the cases we have
observed the consumer ends up buying
the third item. What he means is that in
doing so the consumer usually experi-
mentswithanewcategory. Myntraclaims
the number of items per order has gone
upbyacount of threeproducts inthelast
one year. Catalogues created for women
have driven volumes for the company.
Similarly Jabong has seen a big jump in
sales by cross-selling accessories.
Gettingthelogisticsright
As leading e-commerce companies exit
the phase of customer acquisition to
take on the challenge of customer reten-
tion, logistics will be crucial. Says Shah
of Jabong, When per-order value goes
up along with the number of items, it is
viable for us to pass on the savings to the
customers. This is achieved by driving
efficiencies in logistics.
Let us try and understand the math.
The cost of delivering two items of the
same size to the shoppers doorstep will
not be radically different from what it
takes to deliver one unit. In this scenario,
if the ticket size on a given order goes up
by, say, `1,000, an e-commerce company
can log savings of up to 20 per cent on its
deliverycost, say experts. How? Take just
oneelement: call centrecharges. Whenan
e-commerce company outsources call
management, it has to pay a certain
amount. If the number of calls remain
the same but the order value associated
with a call goes up, it means same work-
load and therefore the same fee for
the call centre but higher realisation for
the e-shop.
While most online shopping compa-
nies that started off with an inventory-
led business model have cut down heav-
ily on stocking inventory and moved
towards the managed marketplace mod-
el, order aggregation is forcing them to
re-evaluate their strategies. Take this
example. Suppose a customer in
Chandigarh has demanded two prod-
ucts from a website that works on the
managed marketplace model. If it has
to source these two items from two dif-
ferent merchants located in, say, Surat
and Delhi, it is unlikely that both the
items will reach the customer on the
same date. Add the shipping cost the e-
commerce company incurs. Where does
it leave loyalty and efficiency?
Subramanian of Myntra the portal
which hopes to be profitable by 2015
says, the website tries to forecast as best
as possible but yes, it doesnt get it right
100 per cent of the times. There is a gap
between demand and forecast, he adds.
But our split order percentage is in low
double digits.
But theres a catch. Delivering more
itemsper order will demandmoreinvest-
mentsfromlogisticspartners. SaysSanjiv
Kathuria, co-founder and CEO at e-retail
delivery fulfilment company Dotzot, a
DTDC company, If the weight per ship-
ment is 1 kg or more, we will have to look
for atransport solutionother thanbikes.
To leverage the network of DTDC and
accomplish timely deliveries, Dotzot is
planning to bring some of the best global
practices in logistics to India. Click and
collect isone. Aspart of this, onlineshop-
pers will be able to pick up and return
their orders at multiple booths set up by
various players.
Aggregating orders is one answer. But
the task is easier and faster for compa-
nies that stock a major portion of the
inventory. With a number of promotions
lined up during any given week Jabong
has managed to increase the number of
items per order by 25 per cent from last
year. Toserviceitsbiggest market of Delhi
NCRfaster, thecompanyhasopenedfour
packaging centres in the NCR itself. In
this way it is able to deliver within 20-24
hours of receiving an order.
In all this shopping portals are follow-
inginthefootstepsof their brickandmor-
tar predecessors. Devangshu Dutta, chief
executive officer of specialist consulting
firm ThirdEyesight, sums up the trend
succinctly: E-commerce companies in
India have to focus on the principle of
lowpriceandlowcost. Global playerslike
Amazon and Walmart have grown by
offering lowest prices and keeping their
operational costs low. Promotions drive
repeat purchase that eventually make up
for lost marginsandthisisnodifferent for
e-commerce companies.
TRADITIONAL
APPROACHES TO LEADERSHIP
ARE INEFFECTIVE P3
THIS ISSUE
A BOARDROOM WITH A VIEW: AN EXTRACT FROM THE BOOK
BOARDS THAT LEAD P2
JOSH BRAND, SENIOR DIRECTOR,
GLOBAL DELIVERY CORPORATE
LEARNING, HARVARD BUSINESS
PUBLISHING
Q
&
A
> MONDAY 30 JUNE 2014 www.business-standard.com
Companies may be diverting
money away from strategically
important projects by cutting
costs indiscriminately, warns a
survey Strategy&, a member of
the PwC network of firms. Low-
priority initiatives get too much
funding, according to Fit for
Growth index, a survey of more
than 500 companies conducted
worldwide. Less than a quarter
of executives said budgeting at
their company is aligned with
strategic planning. Around
66 per cent executives said
lower-priority initiatives receive
more than their fair share of
funding. In fact, about the same
percentage (65 per cent ) said
there are substantive businesses,
products and/or services in their
portfolios that are misaligned
with the companys overall
strategy.
Only a quarter of executives
said their companies cut costs
based on priorities that are set for
the whole organisation. Nearly
half of respondents (48 per cent)
said their companies cut costs
due to external events or outside
pressure, not due to their culture
of continuous improvement. A
quarter of executives said their
companies peanut-butter cost
cuts defined as everyone giving
up a fixed percentage of
spending rather than reducing
spending in a more strategic way.
The survey says leaders of
companies should take a
rigorous review of the
capabilities needed and take a
dispassionate assessment of
where they stand.
About 78 per cent of marketing
executives believe corporate
marketing will undergo a
fundamental transformation over
the next five years due to the use
of analytics, digital and mobile
technologies, finds a global survey
by Accenture. However, a similar
number of respondents (79 per
cent) believe their company will
not be a fully operationalised
digital business in the same
amount of time. The Accenture
report, CMOs: Time for Digital
Transformation or RiskBeing Left
on the Sidelines, notes that
marketing executives are chasing
the digital vision as more than one
third of the executives surveyed
expect digital spending to account
for more than 75 per cent of their
marketing budgets within five
years.
Only 62 per cent of survey
respondents, however, believe
their company currently provides
a good customer experience. To
turn this situation around, the
report says that companies will
have to improve their ability to
build long-lasting customer
relationships, design and deliver
branded customer experiences,
and make use of multiple
channels, digital channels.
The report recommends that
businesses should increase
collaboration with the C-suite,
including chief digital officers and
chief information officers and
reverse engineer corporate
marketing initiatives rather than
focus on sales transactions.
Rethinking
cost-cutting
Digital to transform
corporate
marketing
Vantage
point
DOING
MORE
WITH LESS
Heres howe-commerce players
are shoring up revenue per visit
or the moneya website makes
everytime a customer enters the
online store to stayahead in
the race
CUSTOMERS DON'T LIKE TO BE SOLD BUT
LOVE BUYING AND WELCOME ANY HELP
THEY CAN GET. Good salespeople know
this and focus on fulfilling customer's
shopping mission by offering relevant
recommendations. In the online world,
analytics aims to substitute this
responsive salesperson with three
important differences:
We can leverage a "perfect"
memory and "infinite" computing
power to find what is relevant to
the customer at the moment
We can reconfigure the store
layout and "show" customer only
these relevant things
We can leverage reviews and
buying behaviour of friends/peers
With every action customers are
conveying information about their
attitudes, preferences, life-stage and
socio-economic status. If you regularly
buy a full basket of groceries, but never
buy meat, odds are higher that you
might be vegetarian. What if this kind of
customer understanding can be
developed algorithmically at internet
scale covering millions of customers,
billions of transactions and interactions?
We can create rich customer
understanding across several
dimensions. Companies have developed
solutions to understand customers,
decode their "genome" and use it to
make better recommendations.
Once you understand your shopper,
you must also learn what she is trying to
do. What search terms did she use?
What is the time of the day, day of the
week and her geo-location?
When you search "red
roses" instead of "cheap
flowers", Google results
and Ads are very different.
In the first instance,
Google shows fewer ads
than in the second
instance where Google
"knows" you are more likely
to buy. Understanding
customer context can dramatically
improve the relevance of product
recommendations.
Once we "know" the shopper and
the context, we can hyper-personalise
her experience of the store with
relevant products and offers that meet
her needs. This is a problem of plenty
analytical techniques discussed above
can prune and prioritise these offers.
When you see a store having
sections like "people who bought this
also bought this" or "people who
considered this product ultimately
bought this", the recommendation
engine is at work to personalise the
page. The higher the relevance of
recommendations, the bigger is the size
of the shopping basket.
If relevant information about our
friends is presented, it can increase
conversion and help shoppers take
the leap of faith required before high
involvement purchases. Advice from
other users is usually seen as credible,
unbiased information and improves
customer conversion and size of the
customer's shopping basket.
Online stores frequently have
limited time offers (for instance,
additional 15 per cent off for three days
only) and basket size-based offers (for
instance, additional 10 per cent off if
you spend more than Rs 5,000) to
create time pressure and improve size
of the customers shopping basket.
Customers can get hooked to these
tactics and stores might find it difficult
to wean customers away from these
expensive tactics.
Stores can experiment by
understanding customer price elasticity
and offering every customer a unique
price at which they are willing to buy.
So, a store can charge one customer a
high price if she is price insensitive and
offer another customer enough
discount to make her buy. When such
pricing is permitted by law, it can still
lead to customer angst and loss of trust.
Making it easy
SRIKANTH
VELAMAKANNI
CO-FOUNDER & CEO,
FRACTAL ANALYTICS
THINKSTOCK
E X P E R T T A K E