On 7/7/2010, we had a small discussion with Dr. Jagmohan Raju about his views/insights into the Retailing Industry in general and his observations about this field.
The conversation was lively, interesting and insightful to say the least. Following some of the excerpts from the talk.
On coupons
Dr. Raju mentioned that he started his academic career with Retail related research. His first projects were with Safeway of California and he was fascinated with some interesting developments that he was witnessing.
Some interesting problems to tackle were apparently to do with the effect of coupons of sales of an entire category and not just the specific brand in question. Apparently until then, there was no consolidated view of the store point-of-sale and warehouse views of sales.
As the new advances were coming, his research looked the effect of sales coupons on the sales of the category. The coupons apparently resulted in reasonable , short term spikes. His observation was that there was no long lasting effects on the sales.
Some of the alternatives considered were whether to use deep discounts or shallow discounts. Apparently, they finally settled on using package coupons.
Essentially the insight was that usually when customers are given normal a.k.a FSI coupons, people would lose track of the coupons, or forget them or were just unlikely to come in and use those coupons. Even in cases where they worked, it would cause customer acquisition, but not customer retention and repeat sales.
However adding package coupons were a way inducing customer loyalty and repeat purchases. Some of the means of doing this was like printing a coupon on the carton, to be redeemed for the next purchase or one which can be exchanged for cash or store credit at the cash counter.
Dr Raju stated that the retailers were able to see marked difference in customer retention with this technique and were able to retain a lot of customers and increase the category sales as well.
On private labels
Private labels are frequently seen in US , UK and many other retailers world wide. However, private labels are much popular and prevalent in UK than in US. The primary reason being the concentrated nature of UK retailers as opposed to US retailers, where there are still a relatively larger number of players.
However, one might think that retailers can benefit by focusing their energies on promoting promoting private labels in retail stores.
Dr. Raju states that the role of the private labels is more strategic than monetary in nature. Essentially the idea is to use a strong a private label product as leverage to negotiate a better retail price from the manufacturer. Since the retailer has a reasonably strong brand in the market, the manufacturer will be forced to negotiate terms better.
The repeated message from previous section is that retailers are not interested in getting too many businesses. Their strength is to retail products for others and to benefit from the sales of the whole category. Not just from one manufacturer or from a private label.
Also, at this point we discussed about the viability of private labels in India. An interesting insight is that the retailer needs to have a widely recognized brand name. Something akin to an unaided recall in order to be able to use its image behind a private label. Without the required body of image, private label is unlikely to succeed.
Another interesting dynamic to consider is when and what product category to introduce a private label. Quick Question:
Would you like to introduce a private brand into a category where there are 2 dominant players or a category where there are five dominant players.
Dr Raju prefers the one with five dominant players to avoid more directed competition from the two established players.
On category champion in retail stores.
An interesting concept is that of a retail category champions. The idea is that, lets say, for the soaps section, P & G could be assigned the product category champion by Walmart. The idea is that P & G will take care of product placement, pricing, competing brand quantities, inventory management of the whole 'aisle' in every Walmart store.
Counter intuitive as it might sound, apparently after much research, it was realized that
i. P & G would actually benefit from stocking both its own and it's opponent products.
ii. It benefits Walmart obviously because it is one less thing for them to worry about.
iii. Apparently when incentives are aligned, it could be a win-win-win for Walmart, manufacturer and the end customer as well.
On challenges for Retailers in india
Dr Raju states that the biggest challenge to Retailers in India is the ability of customers to aggregate their purchases. His experience is that typically, a dedicated trip to Retail store is worth the effort if the customer can purchase atleast 7-8 different items and comeback.
However, in India, majority of the population still drives two wheelers. The problem is that at a time we dont have the capacity to carry all these items back home. He says that big box retailers make sense only when the consumer is able to aggregate all their purchases in one trip and take the purchases home. This he believes is a major challenge to indian retailers.
Other concerns are the infrastructure, infancy of the supply chain etc.
Another major concern is the image of big box retailers. In india, we are still used to the notion that big shops mean big margins and hence less affordability. This stems from the traditional "retailers" who would buy stuff from different manufacturers/wholesalers, keep a 3-5% markup, open a shop under their home and sell goods. In such circumstances, we are used to seeing a big store as passing on their overheads on top of their margins. Hence the image to common consumer that big shops are expensive. Retailers will need to figure out a way to change this image.
Some of the opportunities to seize in India, he believes, are with expensive products. For ex, gold, Tanishq, would be an excellent opportunity. The reason being that the traditional model of buying gold in India depended on life long trust one had with the jewellers. However, since indian population has become a lot more mobile and concentrated in cities, such trust is very difficult to establish. Hence, brand name like Tanishq, provides a lot of credibility, which can be leveraged.
He believes that in store credit cards have a lot potential in India. The retailers in the US operate on a substantially higher margin ( usually 100%) than Indian retailers ( <10%>
about malls in india...
Dr Raju sees malls in India as being very expensive. There is a lot of traffic and foot falls, but in terms actual purchases, the volume, he believes, is substantially low. One of the prime reasons is the very high real estate cost in India. This makes the malls very expensive, hence very high prices products are what can be realistically sold in India.
On single brand show rooms
He believes that single brand showrooms will work better from high end brands with a lot of built up brand image. But needs to be carefully thought out for other players.
The primary advantages are such stores can create price anchoring and can focus on product positioning without worrying about interbrand competition. i.e., not worry about the models and colors in which a competing brand is being offered.
on blindspots for marketing departments
He believes that marketing departments usually suffer from some of their expenses being under management blindspots. Companies lose sight of their marketing expenditure to either gauge their strength or weaknesses, because of these blindsport.
Some examples:
i. Sales force in a lot of firms actually performs a lot or marketing. However, this expense comes under operating, overhead or payroll expenses and is not easily visible to managers.
ii. One of the bigger marketing expense by a company is the distributor margin. Distributor margin is in a way an expense to the firm as the firm decides on how much incentive to give to distributors to "push" your product. This does not show up on the income statement or other standard statements of the company / division operations.
Managers will need to keep an eye on such blindspots to make sure they have an eye on their marketing strengths and weaknesses.
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