How to win the battle for India's online shoppers

A garland made of Indian currency notes is pictured in a shop at a market in Jammu, India, November 13, 2016. REUTERS/Mukesh Gupta - S1BEUMPEDEAA

Online shopping is still in its infancy in India, but this is set to change in the next few years. Image: REUTERS/Mukesh Gupta

Sanjay Bailur
Managing Director, AlixPartners
Andy Searle
Director, AlixPartners
Prasit Ghosh
Director, AlixPartners
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This article is part of: India Economic Summit

Digital innovation has transformed shopping across the globe and e-commerce is now the world’s fastest-growing channel for purchasing consumer goods. As this new consumer environment evolves, a range of players up and down the value chain are battling to have the closest relationship with shoppers.

In developed markets, we’ve historically seen a strong connection between consumer product manufacturers and the shopper. Store shelves have been dominated by branded products that are marketed directly to the end consumer. Yet with the growth of private label and hard discounters, this crucial relationship pivoted toward the retailer - a trend that has only grown faster with the rise of digital. Now, start-up tech companies and e-tailers with deep pockets provide a convenient digital channel where shoppers can compare price, specification and customer reviews. This means the retailer can exert much more influence than the manufacturer.

This dynamic is very different in emerging markets like India, however, where organized retail is far less established. Manufacturers in India have so far been less constrained by retailers’ digital relationships with the consumer. But the rapid growth of both consumer spending and digital commerce in the country is quickly changing this balance. What can global CEOs learn from the evolving retail market in India?

Digital is shaking up FMCG worldwide

We’ve seen that digital technologies are shaping both consumer demand and competitive dynamics in the global marketplace. Large, powerful tech companies are building disruptive digital grocery businesses like Amazon Fresh, Google Shopping Express, FreshDirect and Instacart. These early movers may establish positions that prove difficult to dislodge.

Fast-moving consumer goods (FMCG) companies need to use insights from emerging markets and act now. They will have to address digital from the top down and build new capabilities. This may well involve making difficult choices and investment trade-offs.

India’s consumer market: a battlefield for the end consumer

In India, the world’s seventh largest economy, both spending and digital are growing rapidly. This could present a once-in-a-lifetime opportunity for manufacturers to build a relationship with the end consumer.

The booming growth of the consumer market coincides with a proliferation of data and the meteoric rise of mobile adoption in the country. This happy coincidence, combined with the low penetration of organized retail, could have powerful implications for consumer companies that can rapidly develop their digital capabilities to capture consumer demand directly. If manufacturers do not act quickly, they could lose control of their margins, share and brand equity in the rapidly growing digital channel.

Fortunately, there are also some low-risk moves that all companies can make to prepare for the digital surge in FMCG and grocery shopping:

  • Determine how far your company should diversify into the digital space and design an integrated strategy;
  • Shift investments to establish a digital presence;
  • Build internal capabilities for a digital world;
  • Shape the evolution to digital with channel partners.
The digital opportunity in India

The Indian market is on the cusp of change. Currently, more than 90% of FMCG buying happens through the local convenience store and 66% of sales are for unbranded products. But the digital balance is about to tip. By 2020, about 650 million internet users in India will spend an average of two hours online every week and it’s expected that about a third of FMCG spending will be influenced by digital.

E-commerce is still in its infancy here, operating in limited product segments, such as fashion, electronics and white goods through online retailers like Amazon and Flipkart. Tremendous growth opportunities lie ahead. It’s expected that 150-190 million consumers could be digitally-influenced by 2020, using the internet to conduct pre-purchase, purchase and post-purchase activities. “Delivery to doorstep” is a highly desirable convenience in a country of vast distances and notorious potholes. Delivery is also not expensive to provide given low labour rates.

But in such a vast, complex, and changing market, consumer products companies will need to identify the different needs and behaviors of their customers if they want to maintain their relationships with them.

Lessons for global FMCG companies

Traditionally, the target destination for FMCG companies would stop at the retailer. But with the advancement of mobile and data, the opportunity to reach the customer directly is greater than ever. CEOs should take note and make the most of this moment. Here are three lessons they can learn from the Indian market to win in this digital world:

Re-invent customer relationships

Consumer companies need to establish customer micro-segments and target them through rich, tailored, online content to enhance their digital influence. In the absence of an organized retail channel, some FMCG companies in India have created a rich, brand-specific, online presence through their own websites and social media content. This allows them to analyse online traffic in order to understand their consumers’ behaviour at a micro-level and target them better, as well as adapting their offerings to the needs of their own micro-segmented digital consumers. Global FMCGs could replicate this approach to develop a direct bond with consumers.

Developing digital channels along the purchase pathway can help global FMCGs build these deep customer relationships. In India, companies are already investing in building a sophisticated digital presence incorporating personalized content for behavioural targeting. Companies further ahead on the maturity curve should seek to attract specific digital audiences rather than buying an inventory of ad words. Global consumer companies hoping to build similar capabilities could even establish a link with the online retailer and create a rich digital presence across the complete purchase pathway.

Advanced analytics could also be very useful in developing customer insights. In India, the approach to understanding customer behaviour has evolved from simply commissioning market surveys to analysing transactional and implicit data, such as geolocation and web traffic, and unstructured data such as social media chatter and call centre conversations. Mature Indian companies are leveraging the rich data from their digital channels to develop deeper insights into customer behaviour. Companies in developed economies should be able to capitalize on this opportunity even further by utilizing advanced geospatial data on items sold using highly granular locational accuracy.

Develop plans for profitable e-commerce business

Global companies should select the best-fit e-commerce vehicle and establish a level of investment. FMCG companies choosing which route to take in the Indian market (for example, versus e-tail) can learn from the organized retail e-commerce experience in developed economies, where there is an opportunity to co-author the entire organized retail channel. In developed geographies, e-commerce channels are relatively established, though the growth of online-only players has disrupted this space – companies need to re-evaluate go-to-market economics

They should also evaluate some of the differentiated assortment approaches used in India to see if these approaches would work in developed geographies too. For example, after a leading beauty brand invested in an online-only product in collaboration with a YouTube beauty blogger, the product witnessed substantial sales.

Have you read?
Recast traditional capabilities for a digital world

For product merchandising, visibility and placement are key. Globally companies should invest in digital brand stores and secure high product rankings. When it comes to navigation, they should manage product listings across categories to ensure relevance, incorporate customer reviews to improve ranking and use tags to ensure easy searching. They will need to invest in the virtual experience for enhanced “touch and feel” and go beyond mere technical and functional information to offer a rich multimedia experience to connect brands. This is as important in the digital marketplace as the physical. Developed market retailers have improved placement, navigation and product capabilities, and FMCG companies are able to influence ranking through negotiations.

Businesses should also carefully refine their supply chain management process to serve omnichannel retailers. Entrants will need to separate stocks across stock keeping units (SKU), placing those that are slow-moving at central warehouses and those that are fast-moving with e-commerce partners.

Building people and talent readiness are also important. Most FMCG companies in India have made changes in a piecemeal manner, merely responding to changes in the market, and over time this has complicated how business is done. Companies need to adopt a smart and simplified approach to digital growth, creating new capabilities and simplifying existing structures. Globally, companies could look to use and benefit from a pool of talent with digital capabilities, across geographies.

There is much to consider, but FMCG companies in India are fortunate in that they can learn from digital pioneers in other territories. This is a vast, complex and evolving market with both challenges and opportunities, but the potential prize is great.

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