MNC FMCG in E-Commerce

E-commerce is the next big thing in India. By simply sticking around in the market, booking losses and building consumer habits both Flipkart and Amazon seem to have got the basics of category penetration right. It is exactly what any long term investor would do - play a game of chicken with their competitor and hope that the other folds first. Even if they don't, they hope entrenched habits will give them regular repeat purchases.

While this is good marketing sense, the learning which has happened over the past few years indicates that this makes it difficult for premium MNC brands to be a part of these e-commerce websites.

I think it is just WRONG that premium brands are available at the mandi that is Flipkart/Amazon. So let me explain why I say this and also how we need to go about the entire e-commerce strategy.

How people shop

To understand this let's look at how the e-commerce shopper shops for his/her goods online.
It typically starts at the Google search bar (If you use Bing/Yahoo I apologize for your choice). Let's say I want to buy a book. I go into Google and type in "Sandman Harback Edition"

Pretty soon (in about .48 seconds actually) Google returns with around  62400 results.

Then, it's upto me to select the link I want to go into and purchase the book.

Occasionally I might directly go into the site itself, but I know that I can get results for sure from Google and leave the choosing of the site for later. If I find multiple sites with the book I want, I use the middle mouse click to open each in a different tab and compare prices (and delivery dates - only if it's tantalizingly close to someone's birthday).

Hence, any product available on multiple sites essentially ends up being a commodity that is fighting itself on price - even if it is a brand.

We know this. That is why computer manufacturers are coming up with exclusive partnerships with e-commerce sites or publicly illegitimising the sale of their goods from certain sites altogether.

Using the right channels

Take a look at the comparison between the offline and online channels that I drew up.

A brand is a source of knowledge, reputation, experience, traceability and exclusivity. E-commerce websites thrive on variety, convenience and price - if they do not have exclusive dealerships. Hence they will attempt to leverage the brand attributes to hook the customers in while still competing on the same attributes that form their DNA. This erodes brand equity and the brand ends up being a commodity.

A recent report says FMCG may come to e-commerce in a big way - but one look at product category tells us otherwise. What are the customers buying at these sites? Herbal, ayurvedic - the esoteric products which are not easily available offline, Online is where people go to research these products buying them and the customer says "Lo and behold! Here I have the very same products I was researching available for sale! Let me buy it.".

Then where are the FMCG companies seeing online volumes from? Channel undercutting and leakages may be the answer. Distributors may be using e-commerce to get their volumes. While this is in the interest of the current sales, long term brand equity will take a hit

Why MNC brands should tread carefully

MNC brands are all about globalization which requires homogenization for which price control is important. Unless there is tight execution of channel partnership/control to prevent cross trading, leakages will happen, prices online will fall and brand equity will go for a toss.
The way forward is for MNC brands to build exclusive online dealer partners and ensure no cross channel leakages. the good news is we have done this before. A good way to look at this would be simply as a channel conflict problem without getting carried away by the "digital" tag.