Friday, March 29, 2024

Advertisement

Go beyond the traditional

By Stephen R Russomano | Vjmedia Works | February 17, 2014

Retail and service players are redefining the contours of traditional distribution touch-points by exploring the unconventional

Purchase a term-insurance policy or holiday off-the-shelf at a supermarket. Book a pre-packaged holiday as you visit a recovering friend at the hospital. Shop at a virtual store while you sip coffee at your neighbourhood store. If you think these are some way off, you may not be looking around you carefully. Aegon Religare, SOTC, Thomas Cook and Yebhi.com are among a clutch of brands working hard to convince customers that unconventional can sometimes be more efficient.

Indeed, multi-channel marketing is no longer a buzzword for the retail and services sector. It has become de rigueur. The spoilt-for-choice, on-the-go consumer wants a shopping experience that moves seamlessly between the online and offline worlds. So brick and mortar-focused retailers are adding to their distribution repertoire an online arm and conversely, the pure e-commerce players are dabbling in an offline presence via a range of options like pop-up shops and multi-level marketing. Now retailers and services providers seem ready to take the next step and expand the horizon of retail touch-points.

The reasons for expanding into "non-traditional" distributions points are obvious - from exploring innovative and impactful opportunities in the distribution space to moving away from an increasingly saturated marketplace cluttered by a maze of owned stores, franchisee outlets or the traditional agent network. Mind you, it is no longer a luxury. If brands are to excel in distribution they need to look at it not as a cost centre but as a profit centre and lynchpin of success. By developing distribution-centric strategies that coordinate channels, brands in high-clutter categories can drive differentiation and growth.

The reasons for expanding into "non-traditional" distributions points are obvious - from exploring innovative and impactful opportunities in the distribution space to moving away from an increasingly saturated marketplace cluttered by a maze of owned stores, franchisee outlets or the traditional agent network. Mind you, it is no longer a luxury. If brands are to excel in distribution they need to look at it not as a cost centre but as a profit centre and lynchpin of success. By developing distribution-centric strategies that coordinate channels, brands in high-clutter categories can drive differentiation and growth.

What has changed

Harshal Shah, director, marketing, Aegon Religare Life Insurance, speaks about creating a product not offered by any other distribution channel: the AR Easy Protect. The product's premise is simple: groceries for 10 years. Here's how it works: A consumer who purchases the plan, pays a premium of Rs 3,000-5,000 (linked to the age of the buyer) every year for a period of 10 years in total. In the event of his death, his chosen beneficiary will be paid Rs 10,000 a month for a period of 10 years. The idea: one doesn't have to worry about how one's family manages the monthly grocery bill in the event of the primary bread winner's death. A thought Shah feels, might strike the consumer as she walks down the aisle of a supermarket, ticking items off his monthly grocery shopping list.

Aegon Religare is not the only one or even the first one to explore a new channel. Around 2008-09 Future Generali (a JV between Future Group and the Generali Group of Italy) introduced mallassurance to sell insurance through shopping malls, which is modelled on its successful mallassurance operation in the Philippines with the SM Group. Similarly, India is not the only country where insurance brands are experimenting with retail channels. In South Korea, ING sells insurance through Tesco's hypermarkets allowing consumers to sort out their personal insurance needs while picking up their monthly grocery.

A similar off-the-shelf product innovation has been introduced by travel company, SOTC, under the brand SOTC box holidays. As the name suggests, these are holiday packages that come in a box, with specific inclusions in terms of stay, travel and itinerary. What led to the launch? "Based on our consumer insight studies, we saw a retail rush in India. Shopping malls are mushrooming and multiple categories of products are being sold under one roof. Hence we thought of introducing Box Holidays, a pre-packed holiday similar to a readymade garment or any other organised retail product. This innovation also overcomes the holiday consumption barriers like time and effort required to plan the holiday logistics," explains Vishal Suri, CEO, tour operator Kuoni India.

For Yebhi.com's virtual store, the inspiration came from a Seoul (South Korea) subway where commuters place their grocery orders at a Tesco virtual store. The entire product range is projected in a virtual format, the shopping experience similar to browsing the web. Consumers must use technologies like near field communication (NFC) and quick response codes to place orders from their handheld devices like tablets and smartphones. On the choice of location for placing these virtual stores, namely the Cafe Coffee Day (CCD) outlets, Nikhil Rungta, chief business officer, Yebhi.com, says, "We wanted to catch people in a relaxed environment. A cafe is a perfect setting for that. In mall activations, one sees a high level of attention but the clutter is just as high."

The results of the exercise has corroborated the research findings: Yebhi noticed an uptick in the average order value (AOV) at the virtual store. While on the website, it clocks an AOV of Rs 1,500, at the virtual stores, it went up to Rs 1,800.

Shopping in a cafe setting seems a likely fit but booking a holiday in a hospital does not. Still, that's the option holiday planner Thomas Cook is exploring - by setting up a travel desk at the Jaslok Hospital in Mumbai. "Our Jaslok Hospital travel desk is significant in its intent to cater to around 500 doctors and the medical staff at Jaslok Hospital & Research Centre, as well as open up a retail presence in the lucrative Peddar Road area to enable discerning holiday seekers to step in and book a holiday," says Jatinder Paul Singh, senior VP and head, leisure travel (outbound), sales and distribution, Thomas Cook. He adds, "It strategically taps into the various travel needs of the international patients, including their forex, flight booking, hotel and transfer requirements." If you consider India's growing reputation as a medical tourism destination, Thomas Cook's Jaslok Hospital travel desk seems as natural as a virtual store in a cafe.

What needs to change

Venturing into unchartered territories can either usher in a new age or make matters spin out of control just as easily. So, a plethora of challenges and limitations must be battled along the way. Such as finding out whether the Indian consumer is up to the challenge or the new battleground tech-ready. Rungta of Yebhi.com points at the Indian consumer's predilection for being served than do it themselves to explain the need for placing company representatives at the virtual stores to handhold interested consumers through the process. Another learning which the website picked up along the way is that while the NFC technology sounds exciting, a lot of smartphones in India are not equipped with these chips yet, negating the positives of using this technology.

Yebhi's virtual stores ran across 30 CCDs in Delhi and Bangalore over a period of 40 days last year. The company has no immediate plans of reviving the stores. Rungta says that the company has gathered a pool of learnings from the experience but would like to consolidate its online operations before spreading itself further.

Of course, there are the financial aspects to consider too. Currently, such virtual stores operate on a lease contract. CCD or any other real estate partner, would simply rent out the premises for a flat fee (about Rs 1 lakh per outlet per month, though it could vary depending on factors such as area rented, location, manpower cost and so on). A more profitable proposition would be a revenue share model.

That said, virtual stores are very doable and can be just as profitable, maintains Rungta. He works out some basic numbers. Say your marketing spend per day is about Rs 2,500 per outlet. Assuming one clocks a minimum of Rs 10,000 in sales every day (translating into around six-seven transactions at an AOV of Rs 1,500), the return is still three times the spend.

Looking at these numbers, it can be concluded that a higher ticket item would naturally thrive in such a set-up, as fewer transactions are needed to recover the cost. So, even one holiday sold can mean cost recovered for a Thomas Cook. But the challenge for categories such as holidays and insurance is that these are hardly spur of the moment purchase decisions. A Thomas Cook may therefore clinch a deal with a doctor or patient far more easily than a visitor who may collect the literature and walk away.

Similarly, a shopper may take details of Aegon's insurance product but go back and realise that the product doesn't excite him. The key challenge therefore is to draw the consumer back and close a transaction. SOTC is trying to get around the problem of consumer indecision by positioning the box holiday as a gifting option. Suri says the concept is getting popular among corporates, with some of them using it to incentivise staff and business partners. As for the cost, he says, "As the product is pre-packaged, box holidays save on the selling cost as they don't require any sales personnel. We work with certain hotels on an exclusive contract, which helps us save on operational costs."

For heavily regulated categories like insurance, a more pressing problem is the payment mechanism. The insurance sector regulator, Insurance Regulatory and Development Authority, mandates that collection agents must be registered with the body. That is, if an Aegon Religare wants to sell its products in supermarkets, the retail chain must be registered as a corporate agent along with the cashiers. The high employee turnover can be a formidable challenge, necessitating the company to keep its own registered collection agents at the supermarket.

Further, if a holiday or insurance plan must be put on a retail shelf, it must follow retail pricing rules. If a customer goes to a shop to buy a garment, she doesn't pay different prices for different sizes of the same design. Similarly, an insurance player might be bound by rules to charge different premiums depending on the age of the buyer, and that complicates the purchase decision. As Shah admits, an age-banded premium might be an option (a specific premium for those in an age bracket of 20-25, 30-35 and so on vis-a-vis a different premium for 20, 21, 22 etc varying by a few rupees), but the ideal scenario is beyond reach at least for now.

So there you have it, implemented correctly, a new independent distribution channel can be a powerful sales driver for your company. Remember opening up new distribution avenues is only the first step. It will translate into bottom line benefits only when it goes from exciting-to-have to a must-have. And that seems some way off.

Advertisement

Related News

Advertisement
Have You Say
Advertisement
Resource
Follow Us On
Advertisement