FLIPKART 2.0: REINVENTING THE ONLINE RETAILER (A 2012 post revisited)

FKAlmost to the date two years ago I had written this article on Flipkart on some strategic choices it had ahead of itself. Startupcentral, a digital platform run by a friend, had carried the article. Unfortunately the platform has now shut down. I thought of reposting the piece just so it does not lose its digital presence (besides, any back-dated forward looking article is always fun to read). As you read this, let me reiterate – this was written in July, 2012

FLIPKART 2.0: REINVENTING THE ONLINE RETAILER

My first brush with this company was in 2010. I had bought a couple of books just a week back from this online retailer I was recommended by a friend, so the name Flipkart was easy to identify on a nondescript white building on Mysore Road, Bangalore. Since then I have purchased few scores of items from India’s answer to Amazon and at the same time seen Flipkart’s business grow leaps and bounds. They added categories at frenzied pace, launched a digital music store (2014 edit: They closed down the store. Speculations abound but my take is that music’s future is streaming, not owning and perhaps Flipkart saw that), improved their customer engagement and embarked on a refreshingly different advertisement campaign. It goes without saying that valuations also continued the gravity defying move, touching a hair’s width distance to the magical $1 billion milestone. The Flipkart Man – one with a navy blue rucksack full of goodies – is quite easy to spot on the streets too

 Every Silver Lining has a Dark Cloud

Dark clouds are never too far away even in the sunniest of skies. Forbes India kicked up bit of a dust with its cover story on Flipkart – first time a mainstream journal focused on the company’s woes – exacerbated in part by Sachin Bansal, CEO, Flipkart writing to the editor to explain his stance (and mild displeasure) and the editor replying to that. Washing dirty linen in public never fails to get a healthy audience and the social media lapped up this brawl. As is true of the myopic social media, everything was forgotten as something more engrossing took over the twiterrati the following day. That however does not trash the question – what will Flipkart’s strategy be to win in this market, which is increasingly becoming crowded with me-too competitors? Retailing, both retail and electronic, has always been a low margin business and nothing suggests that the current batch of incumbent internet vendors enjoy anything but sub 5% margins (over the past five years Walmart has on average had 3.5% margin. Over the same period Amazon has had 2.48%).

Noah built his ark when it hadn’t started to rain – thus this might be as good a time as any to put on a strategy hat and think aloud what could Flipkart do to with its business to pivot into a new phase of differentiated growth (full disclosure: I have nothing to do with Flipkart or its investors. The market situation in the industry was interesting enough for me to take up this exercise)

Tighten Operations, and Everyone Else Too Shall

There is the low hanging fruit of improving operational effectiveness (OE, which often gets mistaken for strategy). Operational effectiveness initiatives hold out benefits so long as competitors do not imitate them. In a nascent industry where disruptive innovation is rare and transparency high, incremental OE benefits wear out even faster. OE pushes efficiency frontiers away and away first for an individual firm and then collectively for the industry (as imitation takes effect) in the process diluting the value one single firm in the industry could eke out from internal tightening. Short term benefits to a firm are surrendered back to the consumers who are the final beneficiary in an OE war – just like what the state is today (everyone does cash-on-delivery, price pressures are forcing higher discounting, customer satisfaction is largely the same – all benefitting the consumer). An OE war results in a company having to run fast and keep running that way just to stay at the same place. On the other hand, strategy distinguishes participants in an industry and bestows on them unfair advantages consequent to doing things that others in the same industry eschewed. So what could potentially be Flipkart’s strategy for the future?

Overnight successes usually last just that one night. Strategy has got to lay out a more forward looking roadmap for a company that spans multiple years (how long into time often depends on internal and external variables). To make things simple, we lay the future out into three phases – Build, Pull Away and Transform. These do not need to – and indeed should not be – distinct phases but rather overlap each other to benefit from positive momentum that each phase builds and hands over to the next

Build: A Solid Foundation is Half the Good Work

In its first phase of transformation Flipkart must build deeper engagement with its customers. It needs to both build a deeper relationship with its buyers and provide those touchpoints that are more omnipresent than the web-based internet

 Loyalty: It is strange that for a service that is not vividly distinguished from me-toos, Flipkart chose not be build loyalty programs. Loyalty need not have just the old school implementation of co-branded shopping appliances like credit cards. Loyalty programs need to be deeper, where someone who has greater wallet spends at Flipkart feels rewarded both monetarily and – more importantly – otherwise. Flipkart Coupons is another loyalty device conspicuous by its absence. As gifting increasingly strives to put last-mile choices back in the hand of the recipient, a loyalty program based on redeemable coupons will deepen association with the customer. Corporations spend a lot of money in fine tuning their Rewards & Recognition programs to make them suitable for the young demography – a space that Flipkart can immediately capture (and since corporations buy coupons in bulk, a part of working capital management can also be taken care of in the process)

Touchpoints: Ecommerce is shifting from the browser to applications that sit on devices. Flipkart can regain its first mover advantage by introducing iOS and Andriod apps that make shopping much easier than on native browsers

Ring fencing customers and pampering those who return for more is crucial in the build out phase. For years, Flipkart has focused on internal effectiveness and not so much on the customer and it is about time to change that. There is also an important mindset change that needs to happen at this phase – increasing value for not only buyers but also sellers who would benefit the most in having access to the Flipkart platform. Outcome of such thinking will play an important part in the late-second and third stage of this transformation

Pull Away: Inorganic Growth and Building the Ecosystem

Exploit Adjacencies: Having built a solid foundation where the customer has been placed at the focus of future planning (in addition to internal effectiveness, which Flipkart has always excelled in), opportunities in adjacencies need to exploited. Category expansion, which Flipkart has been at, is one way to provide buyers all their needs on a single platform and leverage scale. There are adjacent categories however that have already matured into full fledged businesses with similar – not exact – contours.  Take travel for example. Basic fabric of the business is similar – acquire inventories from suppliers, build a technology platform for delivery, squeeze out a bit of margin and deliver the product by careful customer segmentation. Minus the added headache of physical deliveries. Standing where we are, categories such as these are too difficult to build grounds up for Flipkart hence an acquisition is the best route to increase momentum on the ecommerce flywheel Flipkart has already built and set in motion

Build the ecosystem: When a business model has successful equivalents in developed markets, the role of a local strategist becomes easy – import ideas. That is fallacious thinking. How successful will a Flipkart handheld device or Flipkart Web Services become? I have my doubts. What is interesting however is building supply ecosystem where original creators are encouraged to participate on the platform without losing value to intermediaries. Authors are a very obvious target audience in this category, which itself has a very wide range encompassing text books, animated books, restored (and retold) classics, fiction, non-fiction, graphic novels – the list can go on. Besides the content, form has diversified significantly, thanks to bloggers and journalists. Developing relationship with producers directly (building the relationship is not entirely easy) and co-creating products increases the value of the Flipkart platform for those who were perhaps disintermediated or losing too much to make authoring a successful profession (“authors” have been used metaphorically somewhat. This strategy holds good for any original producer of content/merchandise. For example, this can work as well for art and handicrafts as it will for books)

Inorganic expansion and building ecosystems should herald a different thinking process for Flipkart – a line of thinking that transforms the business from being a service providing ecommerce venture to becoming an electronic marketplace and platform. Platform companies (Eric Schmidt named Facebook, Amazon, Apple and Google as the “Gang of Four” Platform Companies) are ones that come with a core and then combine complements from a variety of other providers to add disproportionate value to the service. Platform companies are difficult to build but once done (and there are important technology and business considerations) are long term more successful than pure-play product or service players are

 This phase of pulling away is the most important phase in Flipkart’s strategy, in both design and execution

Transformation: Onwards to Flipkart 2.0

My vision for a transformed Flipkart is where Flipkart is a platform inviting multiple entities to participate not only as part of supply chain, catalogs and consumption but most importantly in innovation. Think of it this way where in a fast-forwarded world Flipkart is a platform for providing online education content to a vast majority of institutions in India. Creators of content will always strive to innovate and Flipkart being a platform will reap the benefits of that innovation without having to explicitly participate in it. On the same platform innovators will bring newer ways to present the content and perhaps another participant will make learning more social

Leveraging scale becomes easier for a platform company. Continuing with the earlier example, investment in building incremental ecosystems can present disproportionate rewards to business outcomes for Flipkart. The same (or very closely related) content for education could be as applicable in Southern Africa as is it is India, opening up immediately vast business potential. The true unlocking of scale can easily happen in a world where Flipkart is a platform rather than an ecommerce service

A large scale program that takes a product or service company and transforms it into a platform play is not simple. For some it could be a life’s dream. But it certainly is a dream worth living. For a company like Flipkart that has already transformed the ecommerce market in India, this could be the second calling for a chance of inclusion in history’s wall of fame

A Final 2014 edit

Flipkart, having just raised a jaw dropping $1Bn should consider two frontiers that will not just transform the business but also extend its core strategy

With its technology backbone and supply chain efficiencies, Flipkart should look seriously at the B2B materials procurement space. AmazonSupply has already a play and the company is breathing down the neck of Flipkart in India. Flipkart may choose to start small – perhaps in the office supply and consumables space for businesses – see how it goes and then make the grand push 

Payments, especially mobile payments, are an area of opportunity where Flipkart can offer a service to not only its own users but as a third party platform (again, an example exists in Ali Pay). This sits nicely with Flipkart’s big push on driving commerce from mobile devices

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