Friday, January 7, 2011

Home Shop 18 - Developing a brand in a nascent market

Continuing with the theme of companies surviving in tough times and situations, we decided to have a look at Home Shop 18 - the way they managed to make a mark in a completely nascent market. Home Shop18, a venture of the Network18 Group, is an online & on-air retail marketing and distribution venture that was instrumental in launching India’s first 24 hour Home Shopping TV channel on April 9, 2008.

Situation at hand in 2008: Indians have always been the touchy-feely kind of buyers and shoppers. They want to compare things before purchasing, venture out to malls to spend their weekends enjoying the atmosphere while they shop and make all purchases an experience. With such a target segment, the TV shopping avenues were limited to small slots on prime channels in the day, or time slots in the night, when there was hardly any viewership. Even the products that featured were either health products or something related to spirituality, or rarely kitchen appliances. Hence, when Home Shop18 thought of entering this market with a 24 hours TV channel, there was no precedent that they could depend upon. 

Reason for entry: The penetration of television in a country like India is massive. Home Shop 18 calculated that there were about 100 million cable & satellite homes in India, and about 20 million direct-to-home television connections. But malls were present only in about 35 cities (a number which has grown since) and internet population was about 40 million. So, television was the best medium to penetrate into the smaller cities and towns, as they did not have easy access to brands, because of lack of malls and less number of internet connections.

Also, television gave the opportunity to create a captive audience, which seemed exciting to Home Shop 18. Television gave it synergies with the parent company in terms of programming and distribution. But a lot of effort was required. A call-centre would be required to interact with the customers, a merchandising team would be needed as well as a logistics system to ensure timely delivery of products to customers.

Pilot Project: Ferns & Petals, a famous flower retail chain, was the first partner for Home Shop 18. They were asked to help in delivery, and the other things were taken care of by Home Shop 18. A Ferns & Petals toll-free number was flashed on Network 18 channels, small call centre with 18 seats was rented. This pilot was successfully received by the audience, as there were 250 calls on Day 1 of the initiative, which increased to 500 after Week 1. But there were mess-ups at the call centre end, and that led to errant deliveries.

Call Centre Operations: The learning that Home Shop 18 took from this pilot was that a full-fledged self-run call centre would be required. Hence, Home Shop 18 CEO Sundeep Malhotra set up a call centre with 450 employees in Noida, which had the capacity to facilitate 20,000 calls per day. The ratio of successful converts per call was low (5%) in the beginning, but it has gradually increased to 30-35%, the average talk time has reduced from 14 to 7.5 minutes. This was possible by training given to employees, and the results have helped reduce costs. The biggest issue was trust, which is slowly increasing, thus raising the average price of purchases from Rs. 650 to Rs, 2650.

Logistics: Home Shop 18 has integrated its IT system with its vendors. As soon as an order is taken at its call centre, it is sent electronically to the vendor and a courier company. The courier company collects the product from the vendor, delivers it to customer and then collects the money and sends it to Home Shop 18.

Product Portfolio: The kind of reach that Home Shop 18 had to offer, of 3000 cities, was a good proposition to offer to brands to induce them to join the brand portfolio of Home Shop 18. But since there was no precedent, Home Shop 18 had a tough time convincing them. But gradually they have managed to create a strong portfolio of 480 brands and 23,000 products. In terms of sales, 45 per cent is still constituted by jewelry, appliances and kitchenware.

Value Proposition: The customers purchase products on Home Shop 18 due to two reasons- either they find the product unique or they find the deals better monetarily. Thus, a good collection has been a necessity right from the beginning. As for the deals, monetarily though they may not be priced cheaper, they are bundled in ways to make them attractive. Sometimes they are priced cheaper, since because no margins need to be given to retailers and wholesalers in between, it is possible to price them better.

Problems: Since the system is such that payment is made on delivery (to build trust with customers), about 23% of the goods are returned on delivery. This causes huge sunk expenditures. Also, currently it takes a week for the money to reach Home Shop 18, after which it sends the money to the vendor. To reduce this week-long cycle, several innovative methods like swipe machines etc. are being tried out.

Growth Opportunities: In its 2 years of operation, Home Shop 18 has built a very rich database of customer information, their preferences, shopping habits etc. It has recently started using this database to contact customers upfront to sell products of their choice. Currently about 7% of the sales of Home Shop 18 are by this sort of selling, this is expected to grow in the future, especially since with repeat customers, trust is already established which makes selling simpler. Also, a later aim is to add services as offerings, in addition to the current product portfolio.

When Home Shop 18 started as a 24-hour TV Shopping Channel, the industry mocked at them and so did the target segment. Before they ventured into this market, the things that sold via TV were magical necklaces and Lose-Weight belts. So everyone thought that Home Shop 18 was going to be a failure. In 2009-10, it made sales of Rs. 330 crore and 2.5 years later, Home Shop 18 is not just standing, but growing at a tremendous rate. It has succeeded without having a precedent whose model it could emulate, it has tried its own model, failed and learnt, re-worked to make the perfect model. That is what defines real strategy.

Reference: Business Standard

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