Nov 15, 2017

Flipkart’s second coming in private labels rides on its customer learnings

BYSunny Sen

It was sometime in July when Flipkart decided that it wanted its own televisions, branded MarQ, to compete cheek by jowl with leading brands Samsung, LG, and Panasonic. What followed was a quick selection of the manufacturer; zeroing on a design; figuring out configurations, specifications, and screen size; and setting a price that would make it attractive in a country where a TV is bought every two seconds.
What worked in Flipkart’s favour was data about customer preferences that the company had collected over years of its shoppers — what are they searching for, what technology they leaned towards, and what specifications were favoured. “Because it’s a consumer internet platform, the feedback from the consumers comes very quickly and in a fair amount of detail,” says Adarsh Menon, who is leading the private labels and electronics push at Flipkart.
Menon is not a startup guy. He joined Flipkart in March 2015, after spending nine years with Hindustan Unilever – his last designation as general manager (West). I am with Menon as part of a press contingent being shown the manufacturing behind Flipkart’s private labels.
Our destination: a factory of contract manufacturer Dixon, about a two-hour drive from the Dehradun airport. Dixon, promoted by Sunil Vachani, makes the MarQ televisions, and also for Intex, Haier, Panasonic and Sanyo. “We worked closely not only with the manufacturing team, but also the sourcing team,” says Vachani. “They brought seven televisions based on customer insights.”

Adarsh Menon, Flipkart’s vice president of private labels
Adarsh Menon, Flipkart’s vice president of private labels, says MarQ accounted for 5% of TV sales in October

Menon says that success of a private label depends on the product proposition and price. The moment Flipkart decided that it will sell their own LED TVs, it picked up the seven best LEDs sold in the market and opened up the boxes. “Every TV spikes on some feature. Some had very good audio, others had great video, great contrast and so on,” says Menon.
In the next couple of months, it built a 24-inch and 32-inch television by cherry-picking the best features from these seven sets and packing it all into one. The price: the 24-inch TV at Rs 9,000 and the 32-inch one for Rs 11,999 – about 20% cheaper than its competitors. MarQ benchmarks against Samsung’s entry level LED TVs, Micromax, and Panasonic as competition.
But why only 24-inch and 32-inch televisions?
That decision, too, was rooted in consumer insights. The 24-inch television market has the maximum demand in India followed by the 32-inch – the 19-inch to 26-inch category makes for about half the market. The 24-inch segment is dominated by Samsung with its full-HD offering, so Flipkart launched a full-HD model. In the 32-inch space, the entry level version is that of an HD-ready version so Flipkart has launched that.
The sales exceeded expectations. In three weeks, Flipkart sold more than 5,000 units of MarQ TVs, contributing 5% of its TV category sales in October. In the months ahead, says Menon, Flipkart will bring out more screen sizes – but will stop at the 40-inch. TVs measuring over 40 inches make for less than 20% of the country’s television sales in volume.
Televisions is a small part of Flipkart’s large private label play. MarQ will be its large consumer appliances brand. It has already launched microwaves under the brand name and washing machines and air conditioners are on its way.
That’s not all – the company has private labels in fashion, home and kitchen categories, furniture and accessories and electronics. That is much like Amazon, which is aggressively pushing its private labels.

Slow but fast

In spring last year, Flipkart’s leadership team including cofounders Sachin Bansal and Binny Bansal (they are unrelated) met to figure out the next strategic thrust for the company – something that would pull them away from discounts and special offers that have help grow a multi-billion business. It was something that they decided Flipkart would build slow and steady.
But the pace at ecommerce companies is different from consumer durables makers. In four months flat, Flipkart had rolled out TVs – from concept to market. “For companies like Samsung and Sony, this would have taken two years,” said a senior Dixon executive on the condition on anonymity.
Soon after the leadership meeting, a team was put together, a workshop was called for on customer feedback, and discussions happened on what the company wanted to be in the next five years. Private labels was something that would be one of the main focus areas over the next five to ten years.

Says Menon: “A team was put in place, saying that let’s study what happens in the private label space worldwide. The team studied retailers in 20 countries on 50 retailers – the successes and the failures. There were things we wanted to pick up and there were things that we chose to do differently in india.” He is not one to offer you information. No projections or contribution to Flipkart’s overall sales, nothing on new categories in private labels, not even names of members of his team. But, a company spokesperson last month had told FactorDaily on email: “Flipkart’s private label portfolio is wider, deeper and more successful than all its competitors.” No further detail was furnished.
Only after this, a charter was made: of the categories that will be launched first, how these would be built, the products and its evolution. The first one that Menon wanted to go after was mobile accessories. But it was important to forge partnerships with a good manufacturer, define the quality framework, and set targets. That he believed would raise the bar of Flipkart’s offering.
In December 2016, Menon launched SmartBuy – the survey, market due diligence, setting up the quality management team, finding the manufacturer, and selling the product done in less than nine months, he says.
Since then Flipkart has launched products in more than 50 categories under SmartBuy in electronics, home and kitchen, small appliances, home audio and personal healthcare devices – mostly in the unbranded categories. SmartBuy is for small electronic products like headphones, charging cables, fans, hair dryers, electric kettles, among others. MarQ is for large appliances like TVs, washing machines, and refrigerators.

The Amazon nudge

The economics of private labels make immense sense for any retailer. Compared to the 5% to 20% margins they make on trading, in-house brands offer as much as 10% to 40%. Companies such as Trent which runs the Westside retail chain – it also owns Star Bazaar and Landmark, too – is an example of how much private labels can do for margins.
It is not as if Flipkart hadn’t tried to build in-house brands. In fact, Flipkart’s had abandoned its plans of private labels after pursuing its dreams for four years with DigiFlip, Citron and Flippd. Flipkart had spent a lot of time, money and effort in building categories, launching brands and funding discounts. “The timing, readiness and the company’s confidence was not there when it first launched private labels,” says Jayanth Kolla, cofounder of digital transformation advisory firm Convergence Catalyst.
Amazon India’s success with private labels stunned everyone in the industry. Between early 2016, when it decided to bet on in house brands, and now, the Indian unit of the US ecommerce giant has private labels such as Solimo, Symbol and AmazonBasics accounting for an estimated 10-15% of its total sales here in India. Experts say that percentage share is expected to rise to 25% in two years. More on Amazon India’s private labels success here.

“Amazon’s entry into private labels changed things… Flipkart had to refocus on private labels, but this time with a different ideology. Its recent funding will only help it in building a private label selection to fight Amazon,” says a former CEO of a fashion ecommerce company. Earlier this year, Flipkart raised $2.4 billion Japanese conglomerate SoftBank taking its cash reserves to more than $4 billion.
Experts also believe that private labels will define what large ecommerce companies like Flipkart stand for. “Private labels would be the big play in the coming days for all ecommerce players and we are seeing significant investments around building in-house brands,” says Sreedhar Prasad, partner and head – consumer markets & ecommerce at consulting firm KPMG.

Easy picks first

To start with, Prasad says, electronics and consumer goods is a good space to address. “Lot of utilitarian items seems to be the focus from power banks to mobile accessories,” he added.
For Menon, the Flipkart private labels vice president, it was about going after the low hanging fruits. “If you look at the units and transactions, these low ASP categories are very important for first time customers and repeat purchases,” says Menon. ASP stands for average selling price.
It was also a necessity. The first time customer would never buy a television or a piece of large furniture, but would go for something that is of low value. “I want that experience to be very very good, otherwise I will lose that customer,” says Menon.
The highest price of a SmartBuy product is Rs 1,500 for a mixer-grinder. Other products are cheaper. SmartBuy has enough products to cover all kinds of buyers – bedsheets and kitchen products positioned and aimed at homemakers, low-cost electronic accessories for the youth, and so on. “We have 50 categories under SmartBuy, with thousands of SKUs,” says Menon.

Sunil Vachani, promoter of Dixon, an electronics contract manufacture
Sunil Vachani, promoter of Dixon, an electronics contract manufacturer, says Flipkart brought seven televisions models of different brands “based on customer insights” to see what would world for its MarQ brand

The in-house brands also have premier placement on Flipkart searches. For example, if you are searching for a ceiling fan, the one from SmartBuy would feature among the top three-four fans.
It carries the Flipkart brand to ensure that consumer know the product is a backed by the ecommerce company and trusts it. There is a similar strategy for MarQ too. Its called ‘MarQ by Flipkart’, instead of just MarQ. So is Perfect Homes by Flipkart, the furniture brand.
Thanks to the name, most of the 40 products sold out in five days before this year’s marquee sale, Big Billion Days, ended. Flipkart had launched the brand a week before the sale season. “We had thought the stock would last us two months,” says Menon.
Flipkart has launched three brands under fashion, while Amazon has two. Menon says despite its fashion unit Myntra having a strong private label play, it was important to have in-house fashion brands in Flipkart. “There is space to do more. Western wear, formal and ethnic brand – all of the categories are big enough to have multiple brands,” he says. The Flipkart fashion brands are Anmi, Divastri and Metronaut.

Service supports quality

MarQ, Menon says, will address the premium-value conscious customers: people who are looking for good technology but at a low cost. So, when Flipkart launched MarQ microwaves, there were three models. The entry level solo microwave is a price warrior at Rs 3,500. The top-end one has settings to cook built-in recipes and a 30-litre capacity; it’s priced at Rs 8,999.
Had MarQ been an orphan brand without Flipkart’s name, it perhaps wouldn’t have sold as much. But Flipkart will have to show that there is more than just putting its name behind the brand – it will take care of after sales, and customer complaints even after the warranty period ends.

This is important especially with large appliances and furniture. If it’s a minor repair, a handyman from Jeeves, Flipkart’s product repair, and after-sales customer service capability arm, will fix the product at your home. If not, it is taken to the service centre. “Once the warranty gets over, the same thing happens but you need to pay for it. The same thing goes for all categories – from a steam iron right up to high-end furniture,” says Menon.
It is work in progress, for sure. While it’s early days yet to get a fix on the quality of Flipkart private label products, the early reviews on social media are mixed.
Still, one year since Flipkart relaunched its private labels, Menon says that he has established the that private labels will play a big role in determining the company’s future.
Flush with cash, Flipkart will now double down on building its own catalogue. SmartBuy, for example, is already an umbrella brand. In the next six months, Menon has plans to add 30 categories to its already existing 50.
A high-end mixer grinder, priced at Rs 5,000, may soon be introduced under the MarQ label. Other items in the works include a washing machine, followed by air conditioners. Refrigerators and other appliances will follow later.
Flipkart has already tied up with several factories and suppliers. Menon says the number is less than 100, but each one of them are handpicked. The supplier should be customer-obsessed. Third party due diligence of all the suppliers, their manufacturing facilities, logistics, and raw material procurement process has been completed. “It is as intense a process as I would take before hiring someone in my team. A supplier should be as wedded as an employee should be,” Menon says, echoing his ex-employer Hindustan Unilever’s thinking.

For furniture till Diwali next year Perfect Homes will get into new categories like chest of drawers and coffee tables, mattress, multiple sofas, and within the categories it expand into more colours, styles, and kinds of wood. Menon is looking at expanding Perfect Homes’ product portfolio to 400 from 40.
But, it won’t stop there. “The task of widening the footprint is a 3 to 5 years task…
Modular kitchen, bathrooms – those are use cases but not going there right away,” says Menon.
The range of Flikpart’s in-house brands may seem confusing but it is product and market segmenting at work. For instance, SmartBuy is a notch above Billion, Flipkart’s “Made in India, for India” product line: and a pet project of executive chairman Sachin Bansal. Details are sketchy – “We are not authorised to talk on Billion,” says Menon – but Billion will not open every category like SmartBuy plans to.
Billion will look at categories where Flipkart needs to intervene to solve a problem. For example, Billion-branded t-shirts have a special kind of collar given rough wash they have to go by hand in most Indian homes. For mixer-grinder, the size of jars are designed for a size better suited for Indian cooking. The Billion backpack’s zipper is extra rugged keeping in mind use of at least two-three years.
With Billion smartphones, Flipkart hopes to corner some market from strong competitors like Xiaomi and Motorola, and some of the Indian mobile handset manufacturers. Flipkart is playing on its strength of owning the maximum marketshare in mobile phone sales online. It hopes to grow that with Billion.
The future will also see Flipkart entering into food private labels. Menon is aware of the difficulties. “We are accessing the opportunity… The category itself, we are getting into. It is a very difficult to solve for online – low ticket size, everyday use… but certainly, we would look at a play in that category,” he says.
The Flipkart private labels 2.0 story may be just beginning.
(This reporter’s trip to Dehradun was hosted by Flipkart.)

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Sunny Sen is a writer of FactorDaily.