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16 Nov 2016 9th Global Supply Chain and Logistics Summit www.sclgsummit.org

Omni-channel Discussion

Manu Midha Visiting Faculty, IIM Ahmedabad

Ex-Infibeam

Head of Electronics, Souq.com


Defining e-commerce

Internet businesses

E-commerce

E-retail

Search – horizontal and vertical Social networks Messaging News Classifieds Reviews and blogs Comparison search

Utility payments Media downloads and streaming Travel and ticketing E-learning

Product retail B2B retail B2C retail C2C commerce (of products)


Revenue models in E-commerce

• Advertising revenue model

• Subscription revenue model

• Transaction fee revenue model

• Sales revenue model

• Affiliate revenue model


Different business models in online retail

• B2C retail (Jumbo online, SharafDG online, others)

• Marketplace B2C and C2C (Souq.com, eBay)

• Shopping comparison (Pricena UAE)

• Affiliate and content sites (Dublii cashback)

• Classifieds (Dubizzle)

• Deal sites or flashsale (Fashionandyou, Groupon products)

• Deal forums (Desidime, coupondunia)

• Product and service review (GSM Arena)

• Subscription based e-commerce – Fabbag

• E-commerce platforms (BuildaBazaar, Magento, Shopify)


Questions around e-commerce and omni-channel

• Why does e-retail make sense?

– Where is value being generated?

• Different models of e-commerce

– B2C retail vs. B2C marketplace vs. C2C vs. platforms

• Different aspects of running an e-retail business

– Importance of analytics + attention to detail

– Negative working capital nature of the business

• Understand why specific products move faster than others

• Entry barriers and value of customers

• Starting is easy – profits are elusive; how to build a profitable business

• What next to expect in e-commerce


Value in omni-channel retailing?

• Larger selection to end users; lower cost of searching and switching

• Lower pricing than offline (Books in India are 23% lower priced online)

– Lower inventory – through inventory virtualization; aggregation of demand forecast

– Lower overheads; lower rentals; lower manpower per unit sold

– Disintermediation (eliminating non-value adding high cost intermediaries with efficient low

cost)

– Digital delivery of products instantaneously (which can be digitized)

• Greater convenience through products delivered to you


Market development curve

S-curves of growth Strategies in each stage may differ across geographies!


Comparison with Alibaba

Alibaba metrics [China] FY 2015 [US$]

Annual GMV 400Bn

Revenue 12.3Bn

Net Income $5.6Bn

Number of SKU’s 800mm

Number of Sellers 8.5mm

Annual active buyers 350mm

Singles Day metrics

Number of buyers 115mm

GMV in 24 hours $14Bn

Orders processed in a day 467mm

Peak transactions per second 14,000

Alibaba market cap as of 24th Sep 2016 $280Bn


Digital business evolution in India

Company Global Revenue [US$] India Revenue [US$]

Google 75Bn 0.6Bn

Facebook 18Bn 122mm

Apple 234Bn 1Bn


Marketplace vs. Retail

• Trust

• Payments

• Logistics

• Platform

Question - Is there a real entry barrier in e-commerce?

Inventory Hybrid Marketplace

Model Model Model

Question – Why marketplace now?


Path to profitability


Appendix


Amazon versus Barnes & Noble: relative cost analysis, ‘97


Amazon: effect of scale

1997 1998 1999

Transactions 12.8 million 52.9 million 142.2 million

Revenue $148 million $610 million $1.64 billion

Operating Income per unit

-$2.28 $0.4 $1.5


How to Capture Value

Multi-sided platform Subsidy side Money side

Dating Women Men

Newspapers/Magazines Readers Advertisers

Visa / Mastercard Consumers Merchants

Videogame consoles Consumers Game developers

Personal computers Application developers Hardware makers

Consumers

Mobile Internet Portals (i-mode, au)

Content providers Handset makers

Content providers Consumers


Subsidies

Subsidies typically flow to the side with

• High elasticity (Example – Ola, uber free rides)

• Positive same-side effects (pdf, app users, app store users, negative same-side – suppliers of the same product)

• High multi-homing ability (game developers can develop for multiple platforms, merchants may install multiple PoS terminals)


Complements and Product Connections


Alibaba Taobao

• Business Level Complements

• Emerging Market Innovation


Business level complements


Alibaba complements


Amazon complements


Where Can You Add Value to Non-Customers? (WTP and WTS)


Amazon European Distribution Strategy

• Amazon between 1995 and 1999: Growth phase – Opening more DC’s; automation; technology development

• Amazon between 2000 and 2002: Optimizing costs and monetization – Six Sigma implementation

– Simulate holiday season

– Reduce inventory holding costs and increase turns • Better forecasts

• Whom to buy from?

• Integration with supplier systems

• Multiple buyers and system driven buying

– Drop shipment from suppliers

– Powering other brands

– Postal injection for reduction in delivery costs

– Reduced manpower


• Selection

– Supplier ecosystem different; dominant wholesalers in France and Germany

– Suppliers did not have systems

• Price

– Pricing regulations in Germany and France

• Convenience

– Payment options different (checks for France and postal orders for Germany)

– National Logistics network efficient; Cross border inefficient

Challenge in Europe: Localization for a Global company


EDN choices, methodology and evaluation of options

• 3 Choices (Incl centralizing inventory management, virtualization across borders, which DC’s to operate)

• Considerations

– Selection (Cross border)

– Pricing (inventory virtualization, centralizing purchase – better margins)

– Convenience (Speed of delivery, seasonality, postal injection, fulfill from nearest DC, redundancy)

– Demand pattern analysis

– Transportation options

– IT priorities

– DC capabilities

– Future expansion


Pepsi Lipton Brisk

• 3 Objectives

– Choice of media (mass media vs. viral ads online)

– Creative to produce (4 choices)

– Metrics to evaluate (reach vs. engagement)


Consumer decision making process (DMP) – Digital disruption

Pre Trial

Post Trial


Ways to reach out to customers

• ATL

– Print

– Radio

– TV

– Online

– OOH

• BTL

– College fests

– Contests

– Mall activations

– Other events


Metrics to evaluate ads

• Viewing

– Humor

– Celebrities + entertainment

– Social media + interaction

• Sharing

– Story format

• Website visits

– Web component / linkage

• Similar to past campaigns


New age Media – Metrics – Message paradigm

• Mission or Marketing objective (Branding vs. Event)

– Reach required

– Relevance

– Return on Investment

• Media decides the metrics to track

• Metrics determine the message to portray (creative execution)

• Message influences the media to be used


Other considerations

• Comparison of CPM’s

– Prime time television: $29

– Super bowl: $23

– Viral ads: taking influencer fee into account

• Reach or Size of audience

• Relevance of audience reached and ability to target to specific audience

• Amount of attention gathered by the ad

• Engagement of audience reached (more time spent, low avoidance rates, higher call to action, forwards and share’s)


CPM per Second calculations


Online marketing methods

• Search marketing

• Banner advertising

• Social media marketing

• Search engine optimization

• Affiliates and other partnerships


Parameters to consider while deciding online media mix

• Marketing objective (Branding vs. Action)

• Reach

• Relevance/context

• Return on Investment

– Different media could be CPM, CPC or CPA based

– Compare CPA’s across different media

– Using assumptions of CTR and conversions

• Engagement


Points to remember while marketing an online brand in offline media

• Branding vs. Action

• Offline to online conversions low

– Depend on internet penetration

– Creative strength and stickiness

– Presence of a call for action

• Reach

• Relevance

EXTRA SLIDES


Hype cycle for E-commerce


Similar evolution of categories in e-commerce

• Books – Plateau of productivity

• Electronics – Plateau of productivity

• Apparel– Plateau of productivity

• Shoes – Plateau of productivity

• Jewellery

• Groceries

• Fresh food

• Pet food

• Spare parts


Warehousing

Quality check

Inventory mgmt

Order management

Courier allocation

Catalog mgmt

Technology

Merchandising

Analytics

Customer service

Payments and fraud

Accounts mgmt.

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Vendors

Distributors

Retailers

Returns Customer 1

Customer 2

Customer 3

Product flow

Funds flow

Customer 4

Payment gateway

E-Retail Ecosystem

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