Why do marketers give e-commerce platforms exclusive rights to sell their products?
The world of e-commerce has given the word 'exclusive' an all new meaning. More and more brands, across categories, are forging partnerships with e-commerce platforms of their choosing. Here's how it works: only the selected site has the right to sell the product, across the country; no other retailer - online or offline - can stock that product. A look at the model and what it entails.
It all started in 2013 when international clothing brands Dorothy Perkins and Stanley Kane launched their India operations through online fashion retailers Myntra.com and Jabong.com, respectively. Post that, the trend only surged. Earlier this year, mobile phone makers started adopting the online-only model through sites like Flipkart.com, Amazon.in and Snapdeal.com. And the results have been extremely favourable.
For instance, the 2014 partnership between Flipkart and Motorola, for Moto G, resulted in the sale of over three million Motorola handsets (retail value of approximately Rs.3,000 crore). The duo continued the partnership for the launch of two more smartphones, Moto X and Moto E, in India. Motorola, now a part of Lenovo, has edged past Nokia to become the fourth largest smartphone maker in India. In August, Flipkart also launched mobile phones made by Xiaomi, a partnership that resulted in the sale of over 240,000 Redmi 1 handsets (retail value of approximately Rs.150 crore).
After apparel and mobile phone brands reaped the benefits of this model, other product segments hopped on. Today, books, TVs, home appliances, and food and beverage brands are being launched in the market through exclusive tie-ups with e-commerce sites.
Sample these examples: Amazon recently announced that it would be the sole seller of Microsoft's interactive entertainment products in India, including the latest version of its gaming console, Xbox One. Author Chetan Bhagat introduced his new book 'Half Girlfriend' on Flipkart. More recently, Pranab Mukherjee's new book 'The Dramatic Decade: The Indira Gandhi Years' was launched exclusively on Amazon.
Coca-Cola expanded its product portfolio in India with the launch of its sugar-free offering Coca-Cola Zero, which was sold exclusively on Amazon for the first two weeks. The product got 1,700 online bookings in four hours of its launch on September 19. Meanwhile, the US-based burger chain Burger King got Indian consumers to pre-order over 1,200 Whoppers on eBay.in just days ahead of its physical store launch in New Delhi.
The Label Corp, owner of lifestyle e-commerce websites like TheClosetLabel.com and TheTrunkLabel.com, is now available exclusively on Amazon, apart from of course, its own official webpage. Apparel brand Grasim has announced an exclusive tie-up with Amazon, a partnership it hopes will make the brand more accessible to its digital-age consumers.
Home appliance brands like Kenstar and Maharaja Whiteline also took a similar route while launching new products in India. Kenstar launched its Oxy Fryer exclusively on Flipkart, while Maharaja Whiteline tied up with more than one e-commerce store (each for a different product), demonstrating a sub-trend in the bargain - for household appliances like irons, ovens and cookers, the brand partnered with Snapdeal, while for kitchen products like juicers and mixers, it partnered with Flipkart.
Brands that are looking to foray into the Indian market tend to be the biggest gainers in such partnerships, as it spares them a huge chunk of the effort they would otherwise have to take on the offline retail front - the real warzone in India. Praveen Sinha, founder and managing director, Jabong.com, says, "There are many international as well as domestic brands that yearn for visibility. Online, a brand can take its products to consumers in far flung areas that are difficult to reach through brick-and-mortar stores. Besides, it is very difficult for brands to open stores in every city."
Secondly, such partnerships spare the marketer a lot of hassles since a big chunk of it is taken care of by the concerned e-commerce platform. Websites typically announce the tie-ups through full page advertisements in leading dailies and TV spots. Of course, the brands in turn, sacrifice their margins, which goes to the e-commerce company for its efforts.
"Such deals are seen among lesser-known brands, as the partnership allows them to be present on mainstream media channels," says K Vaitheeswaran, e-commerce consultant (and founder of Indiaplaza, India's first e-commerce website), citing Xiaomi and Oppo Mobile as examples of brands that became famous in this market only due to such marketing push.
The nature of the deal, though, varies from brand to brand. If the brand on sale is an established one, the marketing responsibilities are shared by the brand team and the e-commerce company in question. Sometimes, e-commerce platforms have standard rules for all the brands they tie up with.
For brands, another big advantage of this model is the data they stand to receive from their e-commerce partners. Michael Adnani, head, strategic brand alliances, Flipkart, says, "We can let the sellers know at what price points their products will sell, and the kind of offers/discounts customers show a preference for, across categories. This kind of market intelligence helps them position their brands better."
Another pertinent reason for the rise of these partnerships is the omission of the distributor network, one that comprises the 'middlemen' of Indian retail. "Launching a product via this distribution model increases its end price by almost 30 to 40 per cent, and even more than that if the target market is a rural one. So launching a product online helps us control the cost," states Bhaavish VR, country manager, SkyHi Digital, a Bengaluru-based startup that sells consumer electronics - online only - under the brand SkyHi. The company has tied up with different online platforms to e-tail different products; it sells Smart TVs on Snapdeal, and LED TVs on HomeShop18.
Of course, giving offline distribution a skip makes sense for international brands, as they typically lack a strong on-ground network in India. But what makes Indian brands gravitate towards this model? Arun Pal, chief operating officer, small home appliances, Kenstar, rejects the notion that exclusive e-commerce tie-ups are beneficial to just international brands. "Micromax and Karbonn have adopted this model quite successfully," he reminds us, adding, "We tied up with Flipkart in order to go mass with the Oxy Fryer, especially during its early days. Today, people log online to do their own research and learn about the product before purchasing it."
Emmanuel Serot Almeras, vice president, marketing, Groupe SEB India, the company that owns Maharaja Whiteline, feels e-commerce partnerships give brands instant and cost-effective reach in Tier II and Tier III markets. "Brands can also leverage the data and play up their attributes accordingly," he says. Speaking of advantages, these partnerships are a great way for e-commerce players to differentiate themselves from their competitors. States Indiaplaza's Vaitheeswaran, "As a result of the massive consolidation happening in the e-commerce space, these platforms strive to differentiate themselves from one another by offering competitive prices."
For a website, he explains, the advantage of an exclusive tie-up with a brand is two-fold: Firstly, since the product is not available in any other store, the website can control the pricing and secure its own margins. Secondly, partnering with a well-established brand can help bring new consumers/first-time e-buyers into the fold.
Exclusivity comes at a price, apparently. For one, when a brand launches through an online tie-up, it subsequently finds it difficult to expand its availability across other online, and also offline, retailers. And this is a fact across markets and types of products. After all, when American singer Beyonce launched her album exclusively on iTunes late last year, Amazon and supermarket chain Target refused to stock CDs of the album.
Why so? For the most part, it's because the competitive rates/discounts offered by brands' online partners are tough to rival. A Delhi-based electronics retailer captures the sentiment of his fraternity beautifully in a placard placed outside his shop. It reads - 'Please Do Not Discuss Flipkart Rates Here'. In fact, if a brand has already been launched online, some offline retailers agree to stock it only if the brand team offers certain additional benefits.
Some brands try and find a non-binding middle path. Rupa Publications, for instance, signed an exclusive agreement with Flipkart to take pre-orders and sell author Chetan Bhagat's latest book, Half Girlfriend. But Flipkart is just the exclusive online partner; the book was made available at offline bookstores on the day of its release.
Establishing online partnerships is not something all brands should blindly do; it ought to be a function of the TG, caution experts. "Brands targeting urban, tech-savvy consumers will tend to do well in these partnerships. However, for a brand targeting some other TG, which is not predominantly online, I am not too sure how this arrangement can be successful," wonders Vaitheeswaran. That's probably why tech-based products like smartphones sell like hot cakes online.
To what extent is the burgeoning e-tail industry, replete with exclusive deals with brands, a threat to offline retailers?
First, a look at some facts: The online retail market in India is estimated (by IAMAI) to grow from $2.3 billion today (which is 0.4 per cent of the country's overall retail market) to $32 billion in 2020 (three per cent of the retail market). During the same period, the share of the organised retail segment is expected to grow from 8.4 per cent to 14 per cent. Unorganised retail will still dominate.
In most developed countries, both models - offline and online retail - co-exist. "Though e-commerce is here to stay, it is imperative for a brand to have a brick-and-mortar presence as well," reasons Pal of Kenstar, adding, "Segregating products based on their TG and making them available on the right platforms, is where the strategic planning lies."
Vaitheeswaran paints an interesting scenario: The day an offline retail giant cracks the online game is the day the offline retail segment ought to start worrying.
A Note From the Editor
Human nature is a funny thing. At one level, we want to belong to a group and be like the others. And yet, we want to simultaneously stand out and be someone special. That's where 'exclusivity' comes in.
Having figured this out, marketers are happy to slap 'Exclusive' on the most inclusive of situations – basically, on pretty much anything. The burden for making the word entirely non-exclusive lies, above all, with the television business. In India it is believed that unless the descriptor is flung at every other news item, a channel is not doing its job. Even reworded press releases now qualify.
A distant second is the real estate business. Nothing is worth buying unless it is – you guessed it – 'Exclusive'. So, flat upon flat, in large and empty, featureless suburban blocks are trumpeted as being rare and Exclusive. The only way one can defend use of the word is by arguing that since a family will buy one flat, that particular flat is surely exclusive to that family. I have wracked my brain and can't offer a better explanation.
Now, the word is about to be rescued from eternal disrepute thanks entirely to e-commerce portals. There has been a rash of deals in 2014 which can rightly be called Exclusive. When even a soft drink (Coke Zero) and a burger (Burger King) tie up with online players, you know it is a big trend.
Just as brands are trying to stand out, e-commerce sites want to be in the news in a relevant way. A unique brand tie-up is just the thing to draw a consumer's attention – and if the brand or the product is seriously hot, it might even tempt first-timers to the portal.
An online tie-up is especially tempting for brands which are not strong on ground distribution. Besides, there have been a couple of stupendous successes online. The most striking, Motorola: it has become a major smartphone player in India by selling a claimed 3 million handsets on Flipkart alone.
The question now is how far into other product categories this tie-up game can expand – and whether the fundamental logic will survive the initial excitement. Lastly, it will be worth watching how marketers manage to soothe the ruffled feathers of the traditional distribution network.