India — One year on in 2018
The last time I wrote a piece on the evolution of brand building in India, it was mid-2017. A lot has happened since then, which in turn, merits a refresh of my thoughts and perspectives a year on.
One thing that has not changed is the complexity of brand building in the country. In my previous article, I wrote about four forces that create this complexity, of which two are characteristic of India and two are relatively new:
- Variety of languages
- Complex cultures
- Proliferation of brand choices
- Explosion in the number of touchpoints / selling channels
But what is new in 2018, and has added to the complexity and challenge of building strong brands in India?
There is not one by two factors that have mesmerised brand building in the country in recent times — digital payment systems (revolutionised by PayTM) and transformation of the retail industry (a smorgasbord that stretches from a local kirana store to a super-premium mall to Amazon’s entry in the country).
Brands do not pay enough attention to this, but an efficient payments system is critical to maintain a healthy state of stock turnover. In a country like India, where kirana stores form the backbone of the retail sector, a technology-fuelled transformation was long due. PayTM started it, and the potential is so huge that it has finally attracted the attention of WhatsApp, with Google already in the fray with Tez.
The technological transformation of India’s kirana stores are not only restricted to payments, but has also expanded into the domains of promotions, loyalty programmes, inventory management and distribution. This well-researched Quartz article gets into more specific details:
In China, brands have well thought out and focused strategies to engage and sell via online shopping malls (e.g. JD.com, Alibaba). It’s time brands in India wake up to that potential too. The numbers speak for themselves:
- By February 2018, PayTM’s annualised gross transaction value had crossed $20 billion
- Google Tez accounted for 52% of Unified Payments Interface (UPI) transactions in December 2017, thereby beating the Indian government in its own game (Bhim app)
- WhatsApp Payments to be launched in India soon after a successful pilot (global privacy concerns with Facebook delaying the launch)
PayTM has started courting India’s fragmented retail players to open their shops online on the PayTM Mall platform. With high levels of investment from Alibaba and Softbank, it is not surprising that it is taking a leaf out of Alibaba’s strategy in China. The success of PayTM Mall allows PayTM to implement a full ecosystem strategy — selling, buying and payments all happening within the PayTM infrastructure. This is also a smart move to hedge against the already serious threat from Google Tez and Whatsapp Payments on the digital payments front.
PayTM’s strategy is reflective of classical strategy principles — when faced with competition and commoditisation in core offering, expand the remit and relevance of the core.
But as they said, “Rome was not built in a day”. Applying the same phrase to India’s fascination and deep relationship with cash, the likes of PayTM, Tez, Bhim and Whatsapp Payments have a long way to go. Read this insightful article from The New York Times on why cash continues to be king in India’s hinterlands. One word characterises the average India’s thought process — “trust”.
Why does the digital payments revolution impact brand building in India? There are diverse, but important, factors at play:
- Digital payment wallets or interfaces drive mobile commerce (which is the strategy behind creating PayTM Mall) — Statistics in the media confuse mobile commerce with mobile apps, which is one level up in terms of how you define the mobile ecosystem. The primary battle is between Amazon and Flipkart at this point, but the opportunities for brands are huge
Numerous studies suggest that Indians have 3–5 shopping apps on their smartphones, on which they do at least 1–2 transactions every month. A quick search reveals that the Top 10 (or Top 20) shopping apps in India are all online marketplaces (Amazon, Flipkart, PayTM Mall, Snapdeal, Myntra, Jabong, Koovs etc.) but there is a distinct absence of direct brand websites in media commentary. Although there is no beating the reach of online marketplaces, brands need to start investing more on their own e-commerce and m-commerce infrastructure in the country.
- Online marketplaces with their own payment systems expand reach and allow brand owners to have more control over prices, quality and perception— Is this a driving factor? Yes it is because this was the pitch PayTM made to Samsung to get all of its authorised retailers to sell online on PayTM Mall. The ambition is to get all 150,000 of them on board, with the numbers steadily rising
Am I a PayTM investor? In full disclosure, I am not. But this is a great example of PayTM (almost) creating a mega Samsung store on its online marketplace.
There is an important difference here — this is not Nike shoes being sold via Amazon (either directly or via numerous resellers). It is about Nike having an online store in Amazon where it sells genuine products directly to customers, but using the Amazon payments and fulfilment system. This is a common feature in Western retail but is currently under-leveraged in India.
- Reverse integration allows brands to fully capture the benefits of technological progress — In India, the concept of integration is still 5 years behind that of China (and to a large extent, even that of Europe)
There are numerous regulatory and mindset-driven hurdles. Equally, there are instances of different systems not talking to each other. Financial institutions have a highly personalised and biased judgment towards technology-driven platforms, processes and systems overhaul. PayTM on one hand can extend short-term digital credit through a collaboration with ICICI Bank, while on the other hand it can see SBI stopping transactions via its bank accounts to PayTM wallets. Then we have factors like KYC, accreditations, merchant certifications and the work.
To get around these hurdles, brands in India need to make their payment systems flexible yet simple. Payment systems will continue to be influenced by the part of the country you are selling in.
The digital money movement aggressively being pushed forward by the likes of PayTM and Google do not have a seamless infrastructure in India. Nor is it likely to change in the next 5 years.
Having visibility on online marketplaces, allowing authorised retailers to open online shops, expanding the list of acceptable payment options and investing in technology to become more m-commerce savvy are impactful decisions. But they should not end up fragmenting your brand.
Empowering your kirana stores network to run a promotion using technology might sound like a noble idea, but if price is a sensitive factor then it will forever tilt the scales against your brand.
Last but not the least, the emergence of multiple digital money providers and their numerous retailer tie-ups has increased fragmentation. On the surface, the evidence points to the contrary — increased reach, breaking free of the ‘cash’ shackles and empowering millions of players at the bottom of the retail market.
If a brand looks deeper, there are challenges. None of the online marketplaces can act as your sole point of distribution in India but you still need to rely on them. For example, Zara sells through Amazon in India but it does not in the UK. But a closer look reveals that all Zara items on Amazon India are being sold via third-parties or resellers.
This basic difference in the relationship with Amazon highlights the challenges of brand building in India. For a recent entrant like Zara, building equity is the key task. It hopes to achieve this through high quality retail outlets, excellent customer experience, constantly refreshing line of clothing and overall a premium brand image. The availability of Zara products on Amazon India spoils Zara’s strategic brand building efforts. If the same resellers sell via PayTM Mall, then they get the added advantage of selling in front of millions of Indians with digital credit. An integrated commerce ecosystem will work for anyone who can sell well, and it does not differentiate based on who the actual brand owner is.