Saturday, August 25, 2012

Why FlipKart will make the cut

Did you read today's article in TOI on Flipkart's funding round by Samidha? Amazed? shaking your head? Wondering about that story in Forbes?

While I can't comment on the valuation with any authority. It seems rich to me, maybe investors see value being created over time. I can comment on why Flipkart has made it as a brand. not because of the huge media spends, but an altogether different reason.

Here is why Flipkart will survive the current race amongst the ecommerce startups (including the newly arrived "German Brigade").

But first, two instances I want to illustrate, why.

  •  Madhu Menon, who I follow on Twitter, a few weeks ago, made a comment (prompted by my recommendation of Homeshop18), which was on the lines of the following (I am paraphrasing).
For the difference of only Rs. 200 extra, I would much rather go with Flipkart for the mixer-grinder than another provider.
This is not an isolated incident, I have read many such tweets, especially those that value speed of delivery over better prices.

  • Earlier today, I was at Department of Management Studies at IITD, where I was giving a short talk on branding of e-commerce. During the talk I asked a direct question to the student body.
"How many of you buy a book on FlipKart, knowing full well that it may be available cheaper elsewhere on the web." about 10% of the student body nodded the affirmative (some very vigourously).

Two different types of customers and a similar reaction in a section of them. The point of these obeservations is, a statement I made in a previous post about watches:

"The first and only reason for a brand to exist is to create a positive preference towards your brand which allows you to extract better margins over the garden variety of the same product. That’s it. Nothing else."
Make the connection?

Is it all smooth sailing then?

Not quite. While there is this premium people are willing to pay for being associated with a brand. You could call this premium the price of trust. That trust could easily be broken by not keeping to the original promise. Which was "lower prices".

Increasingly Flipkart is no longer the price leader in the primary category it operates in i.e.: Books. In electronics (where margins are thin as it is), you may actually get a better deal from a physical store (imagine the irony). I got a great deal from Croma in Delhi on a new Panasonic plasma TV that I bought October: an eye-popping 63% off the MRP (admittedly, it was a group buy of 25 TV's but even then, quite a deal).

And let's not forget the impending launch of Amazon.com. The global giant is by all acounts on the verge of announcing their launch in India.

Walmart and Amazon are, what they are, because they live to that promise of providing the best value every day. Flipkart just needs to stick to the knitting.