I believe this idea, if implemented can result in huge cost savings AND revenue increase for organized retailers. Groups like Reliance, Bharti, Birlas and Tatas, which have a presence in both Telecom and Retail industries are particularly well placed to execute this.
The idea is based on the following assumptions:
- In the Retail industry a large percentage of costs are the real estate costs for opening stores in every locality.
- The store operating costs and administrative overheads of recruiting and retaining sales people, maintaining stores and logistics are the other major components of costs.
- The average gross profit margin on sales from these stores is 20%
The idea is:
- Open warehouses in localities where real estate costs are low.
- Distribute FREE mobile phones to customers in return of the assurance that they will purchase groceries and other stuff amounting to Rs. 50,000 per year over the mobile. Non-perishable products like Soaps, Toileteries, Eatables like flour, pulses, spices etc can work well in this model.
- The mobile phone should have a virtual store application (running on Java or other technologies) from which a user can select and place orders. I have attached a sample image on how it could possibly look.
- The orders so received are aggregated at the warehouse.
- An efficient delivery route is worked out and the ordered stuff is delivered to the customer’s doorstep within 24 hours of order receipt.
- In case the consumer is not able to order goods worth Rs. 50,000 within one year of signing up, he/she would need to pay some amount towards the cost of the mobile phone.
The benefits of this model over the traditional retailing model are:
- Eliminate real estate costs associated with opening stores in each locality.
- Hugely reduce the manpower and administrative costs of maintaining a large number of stores.
- Lock-in of customers who have availed of the offer/service.
- The customer gains a free phone (assuming a 20% profit margin, the customer can be given a phone costing Rs. 10,000 – at today’s rates a high-end phone can be procured. I also think that this phone should be free of obtrusive branding as customers may not like to disclose the fact that the phone they are using is actually free). If the incentive is big enough, I believe that customers would be willing to change their habits and order from phone.
- One can run sophisticated analytics on customer’s ordering habits and achieve greater efficiencies in order processes.
- Through intelligent data-mining and analytics of demographic data you can generate market intelligence that all corporates would be keen to acquire.
What do you think? Share your thoughts and feedback in the comments.