08 Jun 2020 15:18 IST

New retail model to beat Covid-19 disruption: Local e-kiranas

Lessons from e-comm businesses combined with ideas from network marketing may be the way forward

The prolonged lockdown and its consequent built-up paranoia regarding social distancing have prompted the emergence of innovative ways for retail to manage its business. With malls and marketplaces closed for a prolonged period, and with recent tentative steps by the government to revive the economy by opening up business activities in a phased manner, consumers are wary of what lies ahead. The problem of little access (or, no access) to points of sale due to the lockdown, and customers still staying away from retail outlets for fear of infection, even after things open up, needs an innovative solution.

Two examples from communities living in Ahmedabad bring out lessons for building such sustainable business models. A local chain of stores selling fresh vegetables made a deal with several apartment communities to deliver fresh produce (packed and sanitised) once a week. They revise the price list of available fresh produce a day in advance for the specific communities to place orders and ensure that the orders are packed and delivered against payment on the assigned day to the members of the community at their doorstep. We also noticed that a national e-commerce firm had firmed up a similar deal with another residential community to supply groceries once a week at their campus. There may be many such examples.

Emerging models

Both these initiatives seem very simple but are practical modifications of traditional retailing modes to address the concerns of consumers in the current situation. More importantly, they are a format that is different in some ways from traditional grocery shops that dominated business not so long ago. As we reflect more on these emerging models, they appear to have smartly employed the pertinent characteristics of referral-based customer acquisition methods (network marketing) along with the efficiencies of existing e-commerce formats. Let us explain this in more detail.

Covid-19 has naturally led to enormous limitations in social interactions, imposition of minimum physical distancing norms and avoidance of closed spaces that facilitate pathogen transmission. Unfortunately, modern retailing formats in India, that have come up in the past thrree decades, do not meet any of these criteria. They are air-conditioned enclosed spaces where consumers congregate in large numbers to shop, eat or just while away time. Consumers have, over time, also moved on from the old concept of planned purchases to spending time on shopping for goods in these comfortable environments. Malls and large format stores have facilitated that by allowing consumers to spend as much time as they would want to view, evaluate, and try products and brands before making a purchase decision.

All this leisure has been erased in the past four months. The new rules of social distancing have ensured that retail shopping is no longer a pleasure and, apart from the nagging fear of getting an infection, most consumers have to wait for a considerable amount of time to get into a shop as only a limited number can be allowed inside at a time. That is a double whammy — both risky and an uncomfortable experience for many of us. Shopping as an entertainment option will take a back seat and only the necessity of shopping may prompt customers to venture out in the future.

These concerns may lead to some significant changes in consumer behaviour:

Safety is prime: Fear of catching an infection may kill the urge to venture out of home, unless necessary. Hence the primary need is to look for options for purchase of required goods that reduce the need for going out to the market place. The role of e-commerce with home delivery will certainly grow. Smart methods of delivering goods through a sanitised process will be highly appealing.

Good service will be key: Given that shopping options are limited due to the taboos on community-level interactions, consumers may perceive a sense of “lack of control” over their shopping needs. Dependence on the supplier delivering at home will increase. Consequently, expectations that the supplier is reliable for “on-time delivery” and honours his (her) commitment to “deliver the order fully and safely” will override most other considerations. Acceptable product quality will still matter, but product brand may not be a critical driver of purchase.

Tangible quality of goods is important: We believe that with less outdoor activities in social settings, the acceptable notion of a good brand may undergo a change. The need for visible differentiation will be largely limited to the core utility of the product. Reliable quality of products which serve the core needs of consumers will be important.

The need for products that exploit emotions and status through a differentiation effect (or “frills”) may significantly decline for some time. Price will matter but will remain secondary to service in urban markets, so long as the choices of service providers remain limited. Suppliers may create captive customers in living communities through membership schemes to tide over imminent competition. This marketing ploy is not new for us. Network (multi-level) marketing companies have traditionally adopted such strategies to develop loyal customers.

Living communities become delivery hubs and websites become shopping outlets: That’s the traditional e-commerce model with a slight twist. Orders are not delivered for an individual customer and at her convenient time, as in traditional e-commerce. Increasingly, residential communities (through their welfare associations) will make commitments to suppliers to provide business volume and mutually agree on delivery schedules. Suppliers will commit to delivery of acceptable quality products (not specific brands) and attractive volume based promotion schemes to build equity with the communities. Like traditional multi-level marketing firms, suppliers may incentivise communities to refer them to neighbouring communities to build business and also improve efficiency of deliveries through scaling up operations in the local neighbourhood.

With uncertainty prevailing in the country about how to tackle to the Covid-19 proliferation, many resident welfare associations are taking abundant precaution to ensure that their members do not get unduly exposed to the pathogen. At the same time, consumers get continued access to markets to make required purchases while maintaining social distancing norms.

Such exacting conditions require quick innovative thinking. Consumers are looking for a solution to their retail shopping problem given that travel to the retail point is risky. Such conditions appear to have a negative impact on the supremacy of product branding. Specific products and brands may be less sought after so long as the more critical problem of market access is addressed. Manufacturers may therefore want to quickly adapt to build on their service capabilities and portfolio management skills to address this challenge.

Efficiency-led retail model

Traditional local retailers may have an additional advantage with minimum requirement to adapt. They need to look at their retail points (in malls and other congested localities) as stocking points and not shopping outlets. They may have to move away from “selling in the shop” to “delivery of products at home” that satisfy consumer requirements. The delivery (service) brand becomes more important than the product brand. But unlike large e-commerce firms, which deliver to specific customers, the service definition can be suitably modified to define a customer as a cluster (community) to build an efficiency-led delivery model. Such models can be easily scaled up for the local markets.

This “new world order” requires new ways to transact business, abiding by the norms prescribed by a stubborn pathogenic invasion. Lessons from traditional e-commerce businesses with a dash of ideas from network marketing may resolve the problems of routine purchases that consumers make. With some creative thinking, the same model may be tweaked for suppliers of non-essential goods as well. It is time for businesses to transform quickly and wisely to leverage the new opportunities;and it seems small businesses, with their knowledge of local area markets, are at an advantage here.

(Arindam Banerjee is Professor of Marketing, IIM Ahmedabad, and Tanushri Banerjee, Associate Professor, School of Management, PDPU, Gandhinagar)

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