Disrupt with Care: Reflections on Channel conflicts

RK

In the last few months, there has been considerable coverage in business newspapers focusing on the online and offline retailer conflicts. Mostly, these raised an existential concern of the offline retail stores and the grocery stores (in FMCG what we refer to as general trade). Clearly, this issue has triggered strong statements; the commerce minister went down heavily on predatory pricing practices of online retailers, the confederation of all India Traders (CAIT) threatened to boycott certain smartphone brands and competition commission of India ordered investigations into the discount policies of online retail platforms such as Amazon and Flipkart. I have been following these developments to figure out the fundamental reason for such conflicts that could potentially harm the interest of all channels involved. I remembered a statement from my boss sometime in 2012 when we were launching a new newspaper brand in Kolkata. He said, “Never disturb the basic market practices” and advised that all our channel management policies must be implemented to meet our channel objectives without hurting the structure and margins. My 25 years of working with the newspaper distribution network across markets taught me exactly the same. Here are some of the events and associated learnings that made us wiser.

  1. Invitation Pricing in Delhi Market: We launched invitation pricing in Delhi and reduced the cover price of The Times of India(TOI) from Rs.2.30 to Rs.1.50. The retailers (vendors as we refer to them in this business) were quick to react in placing their demand – you can lower your cover price but you cannot lower our gross margin of 69 paise per copy. As per the new price, their margin was reduced from 69 paise to 45 paise (30%) and this was not acceptable to the trade. 

The coercive power of the channel established a new trade norm – you can lower your cover price to attract new readers but do not lower our margins. 

  1. Newspaper in Education(NIE)’s direct channel: Many of you might have taken membership of NIE while in school. In its initial phase, the NIE program was targeted to grow brand equity of The Times of India among the students and possibly, their parents. A few years later as the program’s popularity and its reach grew, there were more and more students started receiving a copy of the Times of India, the retailers started complaining that their customers were asking them to stop delivery of the copies as the newspaper was being brought by the kid from the school. In essence, it was potentially an issue of direct channel cannibalizing the business of an intermediary. This remained a point of conflict till the time a special NIE edition was launched which was an abridged version of TOI carrying different content mix. 

A new channel, online or offline is a great idea if you are selling a different product minimizing the cannibalization of the existing brands. 

  1. Going direct to home through prepaid subscriptions: An older way of selling TOI to non-readers was to offer inducements; a switch to TOI through a communication to the retailer. Mostly such readers would receive a small gift after the confirmation from the retailer that the reader has started buying TOI from him. Disrupting this old practice, a pre-paid subscription scheme was launched which ensured advance payments and a confirmed period of readership for 6 months or 12 months. However, implementing this required acceptance of a big shift in business practice. The subscription purchase was a direct transaction between the company and the customer and the retailer was required to just deliver the copies and collect the bill from the company. This change fueled fear in the retailer’s mind and they objected to it. It took some time to convince the retailers that how this strategy will expand the market and bring in more customers for them. We also added a small incentive over and above the regular margins for the prepaid subscription copies. Many years later when we launched a new brand in Kolkata, the pre-launch subscription booking was not only supported by the retailers but they actually participated in the subscription sales drive!

If you disrupt a business practice, get the channel’s confidence by showing them more business and higher margins.

  1. Unbundling and rebundling: Most of the metro editions of TOI has a city specific pullout such as Delhi Times, Bombay Times etc. In Kolkata, TOI has a pull out called Calcutta Times. As an experiment, it was decided to unbundle TOI and Calcutta Times as separate brands with different cover prices. From the perspective of market penetration through low-risk trials, it was expected that many readers who read competitor brands would at least try Calcutta Times and will eventually shift to TOI. However, this also meant that existing TOI readers could drop Calcutta Times resulting in lower margins for the trade. However, more than the margins, the real issue raised by the retailer’s union related to the way we wanted to see them a newspaper as a product. For them, a newspaper is complete with all the pullouts as was the practice for all other brands. The Union looked at this as a potential threat that could disturb the norms related to the product configuration itself! Clearly, the best solution was to make a retreat and re-bundle.

Any marketing strategy which seeks to disrupt the deep-rooted norms of the business must be backed with a solid business case; for the channel first and the company next.

 

 

 

 

 

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