Sunday, 24 January 2016

7 business stories from 2015 and how they will play out in 2016

BABA RAMDEV’S STRATEGY TO TAKE ON MNCS
It is estimated that sales of yoga guru Baba Ramdev’s Patanjali brand of products are likely to top Rs.5,000 crore by the end of FY16.
How is Patanjali able to clock impressive sales growth figures at a time when other packaged consumer goods companies are finding the going difficult?
A home-grown formula
To many, Patanjali would seem to have come out of nowhere and become an overnight success.
Not really. The company was incorporated in 2006, but the background work of identifying the product category, finalizing its recipe, sourcing raw materials, etc. began years earlier.
Here’s my take on why it has succeeded, based on a fortuitous meeting with Ramdev in 2011 in Goa:
1. Product: Use genuine, natural ingredients and in sufficient quantities, so that it delivers the promise. The result: customers experience the promise.
2. Competitive price: 15–30% lower than the competition.
3. Promotion: Use alternative media to build the brand:
l Create buzz (word-of-mouth publicity): When a company makes a claim, only 20–49% of the people believe it. But when real people speak good about a brand, believability jumps to 70%; when friends say good things, it goes up to 90%. Result: more people believe in the brand promise, and the firm needs to spend less on advertising and sales promotion.
l Leverage public relations: Baba Ramdev is the celebrity endorser of his brand. He is always in the news, which automatically brings publicity to his brands.
l Go digital: His website is extremely engaging.
l Integrate the brand in your message: He holds innumerable yoga camps and is on Sanskar channel for the better part of the day. While demonstrating yoga poses, he subtly introduces the products, highlighting their features and benefits. He avoids forceful product placement.
4. Place (distribution): Patanjali uses multiple distribution channels, from company-owned stores that exclusively sell the brand, to normal stores, to modern retail outlets like Big Bazaar.
5. People: According to Ramdev, the salespeople in Patanjali stores act as “authentic consultants”. They listen to the customer’s problems and provide a solution that will eliminate the problem once and for all. He took pains to point out that big companies ensure that people become dependent upon their product, thus providing them business.
5. Low expenses: According to Ramdev, his salespeople travel by public transport, and stay with friends or relatives as far as possible, or in functional hotels. He hires locally at extremely competitive salaries.
The business lessons
Has his strategy borne fruit? Well, my mother insists on using Patanjali products and has convinced my wife to opt for them.
The lessons then:
1. Focus on creating a great product.
2. Make sure the product delivers the promise.
3. Place customers’ interest ahead of yours. In return, they will protect your interest by giving you business.
4. Make your customer your brand advocate.
5. Use alternative media to build your brand.
6. Keep expenses low.
2016 and beyond
Will Patanjali continue its march? Seems unlikely. In the dying months of 2015, Patanjali seemed to be jettisoning the strategies that brought it success:
1. Instead of focusing on its differentiator—herbal and Ayurvedic products—it seemed to have become more competitor-focused. On 15 November, it launched atta noodles to take advantage of Nestlé Maggi’s woes. This was accompanied with negative publicity. The Food Safety and Standards Authority of India (FSSAI) sent Ramdev legal notice, alleging that he didn’t obtain due permission prior to the launch.
2. It is embracing the more expensive traditional advertising vehicles—television, print media, etc.—instead of continuing to build the brand through alternative media, which is slow but extremely effective.
It seems that Patanjali has caught the same disease as other packaged consumer goods companies—of chasing sales growth at all cost. This strategy is self- defeating.
MAGGI-UNTWISTING THE NOODLES
In June, a case was lodged against Nestlé India Ltd in a local court over the safety of its Maggi noodles. The Uttar Pradesh Food Safety and Drug Administration found monosodium glutamate (MSG) and excess lead in samples. Another case was filed against actors Amitabh Bachchan, Madhuri Dixit and Preity Zinta for promoting the brand.
A possible slide into hot water
For a brand, the trust and reputation it enjoys with its customers are of critical importance. This controversy threatened to damage that for Nestlé.
Nestlé’s response was tepid. An official statement said: “We do not add Monosodium Glutamate (MSG) to Maggi Noodles. We use raw materials that may contain naturally occurring Glutamate which could be confused with commercially produced MSG. Glutamate is safe and is found in everyday and high protein foods including tomatoes, peas, paneer, onions, milk…. the company does not agree with the order and is filing the requisite representations with the authorities.”
In the absence of a strong defence, a perception could have gained credence that Nestlé had taken a surreptitious route to add glutamate to overcome legal hurdles; that instead of adding it directly the firm had used ingredients that contain glutamate.
Nestlé could have suffered more collateral damage if these perceptions gained ground:
l Nestlé is not sure of what it does and therefore every claim it makes should be taken with a pinch of salt.
l To achieve its business objective, the firm can adopt surreptitious means, keeping its interest ahead of customers’.
(FSSAI banned Maggi noodles in June; the ban was overturned by the Bombay high court in August, and the snack was relaunched in November, after it was found to be safe for consumption by three laboratories.)
2016 and beyond
The new year augurs well for Nestlé because it seems to have learnt from the setback. It is taking proactive steps to protect its business:
1. A balanced brand portfolio: No single brand should contribute disproportionately to its overall sales. To achieve this goal, Nestlé is planning to introduce in India a range of new coffee, chocolate and milk products plus a selection of health products from its global portfolio.
2. Follow the statutory guidelines in letter and spirit. If the re-launched Maggi is tested, the sample is unlikely to contain MSG beyond the permissible quantity. Why? Not only will Nestlé ensure, like before, that it does not add MSG, but it must have also taken adequate steps to ensure that MSG does not enter its recipe even surreptitiously through the ingredients.
3. Be transparent and authentic and over communicate if hit by a scandal: Nestlé would have learnt, at a high cost, that silence is not a judicious strategy—provided you have nothing to hide.
CAN FLIPKART KEEP ITS VALUATION SOARING?
The soaring valuation of e-commerce firms was much in the news. To me they seemed stretched by a wide margin. The valuation of these companies are done as a multiple of gross merchandise value (GMV), or the value of goods sold on the site before accounting for discounts, returns, advertisement costs, etc.
Now here is the shocker: The normal discount is between 20% and 70% (average 40%); the normal return can be 20-30% (average 25%) and advertisement costs can be as high as 15%. When you subtract these expenses from GMV, there is merely 20% margin left to pay for other operating expenses. I feel when the dust settles, only one or two companies will have lived up to the hype; all others will perish, taking down the investments made in them.
2016 and beyond
In May, Flipkart was valued at $15.5 billion. Will its valuation continue its upward movement in 2016? I think not. Here’s why:
Investors, till recently, valued companies based on multiples of revenue (such as GMV) and number of active users on the platform. They gave margins and cash flow a miss. Result: most investors have burned their fingers and are in no mood to repeat this mistake.
If Flipkart wishes to continue to be the darling of investors, ensuring that its valuation continues to move northward, it ought to shift focus from maximizing GMV to:
l Consistently delivering insanely great experiences to every customer—from the time they get on board till they get delivery, and ensure awesome after-sales service.
l Spending money not on buying sales—which it currently does by only advertising deals and discounts—but shift this money to building its brand and reputation.
It can monitor the effectiveness of this strategy by measuring net promoter score (NPS), which measures customer loyalty. A higher NPS means greater loyalty. And in case it’s low, take action in real time!
Most importantly, Flipkart should make up its mind, whether it wants to follow Amazon’s or Alibaba’s business model or adopt a user-centric approach, which would involve engaging with users to determine their pain points and taking prompt action.
PROJECT LOON’S NET GAINS
In Sri Lanka, merely 3 million people are connected to the Internet out of a total population of about 22 million.
Google’s mission is to make Internet access universal. To achieve this, it has teamed up with the Sri Lanka government to deliver broadband connectivity to every region of the island nation, making it the first country in the world to have universal Internet coverage.
How it works
This initiative is part of Google’s Project Loon, which aims to provide cheap or free Internet connectivity to people in remote rural areas around the world via a fleet of helium-filled balloons floating way up in the stratosphere.
For Sri Lanka, Google’s plan is to have a network of about 13 balloons floating in the stratosphere at a height of around 19km—2x the height at which commercial airlines fly. These balloons will receive Wi-Fi signals from ground stations and will bounce these signals along to each other. Every time a balloon receives a signal, it will transmit it to an area of 40km in diameter below, allowing people to directly connect to the 3G network using smartphones and other devices.
What’s in it for Google?
Why is Google so magnanimous in providing cheap or free Internet connectivity to every Sri Lankan and subsequently to the world?
One of the world’s biggest battles is for control of last mile connectivity into users’ homes. Many believe that the firm that controls the last mile will take home the world’s richest jackpot.
No wonder Facebook is also working on internet.org with a goal to make basic Internet service available to every person in the world. Or take Space Internet or O3b—Other 3 Billion. These are also efforts to provide high-speed Internet connectivity to every person on the planet.
2016 and beyond
In India, Project Loon will have to wait for a while. This is what Google CEO Sundar Pichai indicated when he announced that Google in collaboration with Indian Railways will provide high-speed Wi-Fi Internet connectivity at 400 “high footfall” railway stations across India—initially for free and then gradually make it self-sustainable.
Project Railway seems to be the first concrete step Google is taking in India to connect the next billion online. Currently only 250 million Indians are connected to the Internet, leaving out 1 billion.
This initiative by Google to connect the “next billion Indians” will ensure that it gets a firm grip over last mile connectivity in India. Once this mission is accomplished, it will surely announce plans to monetize it, as it did in the past with its search initiative.
It offered search free to users, which resulted in 1.2 billion people using its platform. Once it had those numbers, it monetized it by inviting advertisers on its platform.
Will its worthy competitor Facebook remain a silent spectator? Of course not.
Facebook has launched Free Basics in India. Through this initiative, it, along with its Internet service provider (ISP), will decide which sites people can access for free. Internet activists allege this move will make Facebook and its ISP gatekeepers to the Internet, controlling the content we can access free and what we pay for—a severe blow to Net Neutrality.
2016 promises to witness a dogfight between the two worthy tech giants—over us!
THE FUTURE OF SHOPPING
Shoppers love to shop. And when it comes to shopping for clothes, they wish to try on as many as possible before finalizing the ones to buy. But trying on a multitude of clothes is a cumbersome and enervating experience.
Shoppers Stop realized this pain point and decided to leverage technology to reduce it.
It has launched an augmented reality-based dressing room.
This room contains a Magic Mirror; the shopper can view herself adorned in new clothes and accessories without having to physically try them on.
The business lessons
l Identify customer pain points.
l Devise a solution that will reduce or eliminate them.
l Explore the possibility of using technology for identifying and drawing up a plan to reduce or eliminate the pain point.
2016 and beyond
Shopping in India will be turbo-charged by technology:
l The personal assistant (PA) will go mainstream: Many more e-commerce sites will provide a shopping PA, inspired by Apple’s Siri or Microsoft’s Cortina. These PAs will make recommendations and facilitate cross-selling of merchandise.
l Self checkout in bricks-and-mortar stores: Stores, powered by technology, will introduce self checkout. This will allow shoppers to self-scan their purchase, generate a bill, pay using mobile wallet and walk out. This will eliminate endless waiting in line to make a payment.
l Big Data analysis to see relationships between unknown variables and leveraging them to ring in sales: Take this case where, based on weather reports, Big Data predicts a storm. It will also tell store managers the product categories to stock up on: battery, candles, mineral water, beer. Yes, beer. Past sales data indicates that when people are forced to stay indoors because of a storm, they get a bit nervous and also have time to kill—and beer helps in both situations. Hence beer sales witness an upward spike when storms hit an area!
l Leveraging technology to become more agile and lean: In other words, responsive to customers and asset-light—which will result in improved customer satisfaction and profits.
l Wish lists: More sites will offer shoppers the option of sharing their wish list, so that the e-tailer can make it available and not lose sales.
l Review and rating by customers will assume greater importance: Retailers will keep an eagle eye on how shoppers review their products and rate their shopping experience. Why? Other shoppers will refer to them while taking decisions.
l Rise of fit lifters/Web lifters: More shoppers will visit bricks-and-mortar stores to physically try on products for style and fit, then visit price comparison sites for best deals and place order online. Bricks-and-mortar retailers call such shoppers fit lifters. When the reverse happens, e-tailors call them Web lifters.
l Omni channel retailing will go mainstream because shoppers will want to move seamlessly between various channels.
l Online-to-offline will go mainstream: Shoppers will place orders on retailer’s site (and not just at online marketplaces), and the retailer will deliver it offline—to their home.
PRO KABADDI LEAGUE—GAME ON
Did you know that the Pro Kabaddi League (PKL) is the second most viewed sporting event (viewership: 435 million) after the Indian Premier League (552 million) in India? It has attracted 3x more viewership than the Fifa World Cup 2014.
What has attracted viewers to this sporting event, which till recently was played in the hinterlands of India and had near zero aspiration value and extremely little relevance to urban youth? When Star Sports decided to adopt kabaddi, it took onboard these issues and decided to address them strategically. Its strategy rested on two pillars—to deliver a world-class experience to viewers and marry it with glamour and aspiration.
The strategy
1. Deliver a world-class experience: Star Sports invited a world-class production team to produce the content, so that viewers could get a ringside view of the excitement on the playground. For this, 15 cameras were mounted across the arena. The broadcast was adequately supported by statistics, graphics and analytics to boost the perception that kabaddi is a serious game. Commentators were fluent with kabaddi vocabulary, which they could effortlessly deploy to describe the action.
2. Make it glamorous: Celebrities from Bollywood, cricket and TV graced the venue. Their presence helped make the sport aspirational. When the cameras captured their agony and ecstasy at the teams’ ups and downs, viewers too started relating to the game.
3. 360-degree communication: The theme song Le Panga was sung by Amitabh Bachchan. TV spots and hoardings supported this event. Bachchan singing the National Anthem flagged off the opening event of PKL 2.
To keep the excitement alive, a women’s kabaddi league may be in the offing.
Lesson for us: Every problem can be overcome provided the issues are identified correctly. Then the issues must be addressed robustly through a strategy. Equal effort and resources must be put behind executing the strategy.
2016 and beyond
Sporting events, powered by technology, will attract fans in greater numbers both inside and outside the stadium. Providing them an unforgettable, immersive experience will lead to more views and stickiness (time spent watching the sport).
The only prerequisite: the fans should be armed with a smart mobile device.
Fans will have the option to view players’ stats, replay exciting moments, and view the action from different angles thanks to live feed from multiple cameras placed strategically.
Star Sports too should embed more technology to deliver such an immersive experience.
This immersive experience will ensure that more and more fans throng the stadium for a live experience. Those who could not make it to the stadium will be able to experience the thrill through a smart mobile device.
OLA AUTO—THE FIGHT FOR AUTORICKSHAWS
What do successful businesses do to ensure their revenue and profit keep growing? One strategy is to plan an entry into adjacent territories.
Take taxi-hailing services Uber and Ola. Both quietly started aggregating autorickshaws on their platform.
Both were pursuing a “loss leader” strategy to lure autorickshaw drivers on to their platform—they provide the drivers business without charging them a fee. This is in contrast to taxi drivers who pay a commission to use the platform.
From the streets
This aggressive strategy is hurting the small firms present in the market. Take Bengaluru-based mGaadi, which claims to have over 10,000 autorickshaws on its platform. It charges a flat Rs.5 fee for every ride it provides. Certainly, its business is getting adversely impacted.
So how did mGaadi respond to the threat posed by these whales? By providing better service. mGaadi has started offering advance booking for an autorickshaw.
Or take Pune-based Autowale. It built stickiness into its business model itself. To ensure that autorickshaw drivers do not desert it for greener pastures, Autowale made it mandatory for every auto driver to pay a fee upfront. But why would an auto driver pay an upfront fee? Because he is promised a 150% increase in income.
Only time will tell who will survive the battle. But even as the autorickshaw space witnesses a battle, another adjacent territory is ripe for entry—bus service. Ola is already eyeing this territory.
2016 and beyond
The new year may not augur well for the national taxi aggregators who have entered autorickshaw aggregation—uberAUTO, Ola Auto.
In the dying months of 2015, uberAUTO quietly withdrew its auto service from Delhi, the only city where it was functioning. Uber did not give any specific reason for the withdrawal, except that it is temporarily withdrawing this product to solve specific problems to help it scale. But I don’t see it re-entering the market in 2016 for the following reasons:
l Lower transactions size and lower margin per transaction. This makes the business model unattractive for Uber.
l Uber Taxi has caught on in urban areas because it catered to people who are cash-rich and time-poor, and are willing to pay for convenience. Majority of auto riders are not sufficiently cash-rich.
l An autorickshaw, for most users, is a cheap means of transport and they are not used to paying a premium for the ride; most are used to hailing it off the street. An app does not provide them more advantage, but makes the ride more expensive.
l Many autorickshaw users don’t have smartphones and can’t access the app.
l In due course, taxi aggregators will discover that the auto business is eating into their more profitable taxi business—a customer can easily downgrade to an auto.
Why is Ola still in the running?
It could be focused on generating revenue because venture capitalists often give valuation based on multiples of revenue.
Does that mean that auto aggregators do not have a future? Of course they have a future. But national companies are unlikely to dominate it; local and niche firms like mGaadi, Autowale and Jugnoo will dominate this service.
l They are willing to work on a lower margin.
l They are willing to make an effort to understand the psychology of auto users and create suitable offerings—a pricing policy to match their expectation; introduce non-app-based system for accessing the auto, etc.
Read an unabridged version, with more business stories analysed, on www.foundingfuel.com.
Rajesh Srivastava is a corporate consultant, entrepreneur and academic.

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