When the top executives of Motorola Mobility gathered together late last year to discuss the company’s re-entry into India, they were confronted with a burning question, the answer to which would pave the way for a number of companies in the year ahead.
The meeting and question weren’t about whether Motorola’s new smartphone was good enough or whether Indian consumers would receive the company warmly again, after its unceremonious retreat a few years ago.
They had met, instead, to decide whether to eschew the traditional wisdom of building a physical distribution and retail chain, thus avoiding the costs and negotiation headaches involved.
Five months after launching the Moto G smartphone with an online-only sales strategy, the company made history and announced in July that it had sold over 1 million phones through its online partner Flipkart.
Today, nearly every new, serious smartphone company has embraced the words ‘online’ and ‘only’. Xiaomi and Oppo, like Motorola, have partnered with Flipkart. Obi Mobiles, the brainchild of former Apple CEO John Sculley, has decided to strike it out with Snapdeal, though it also plans on opening up retail stores.
New strategy The popularity and success of an online retail strategy has instituted three new rules in the Indian smartphone market.
Firstly, a huge amount of customers are now willing to spend up to ₹15,000 on electronic products without having to go to a physical store. The upper limit, for consumers who wanted to buy a mobile phone online, used to be around ₹5,000.
The second rule is that the holy cow of Indian retail - which says that ‘Indian customers will want to touch and feel a product before buying it’ - no longer holds true. While some of this is because the homogenization of smartphones has started, where most phones look and feel the same, it’s also because buyers have become less skittish.
As Motorola Mobility Country Head Amit Boni recently put it, “touch-and-feel is overrated”. “Even if we consider organized retail, only a couple of stores allow consumers to try their hands on a real handset. Usually, one gets to see a dummy phone,” he said in a recent interview.
The third rule is for smartphone companies that don’t have a clear-cut online retail strategy or, in some cases, are quite anti-online. Companies like Gionee, Lenovo and HTC are worried about the price cuts that some online retailers offer as they fear it will upset their physical channel partners. These players - who shy away from the Internet and prefer the age-old, billboard advertisement strategy - risk losing out in terms of mind share to firms like Xiaomi and Motorola.
Above all, an online retail strategy allows a company complete control over the pricing of its product. Physical retail channels, and its associated middlemen, shave away margins by up to 15 per cent , according to various estimates. Nevertheless, there should be no reason why a phone like the BlackBerry Z3 is priced at nearly ₹16,000 - especially when the Moto G comes at a cool ₹12,500.
Wait and watch Motorola has shown that an online-only sales approach is perfect for companies that are looking to test the waters and perhaps differentiate themselves through quirky marketing campaigns and flash sales. It is little wonder that most Chinese companies have chosen to adopt this approach.
This does not mean, however, that there are no drawbacks. Online consumer forums are packed to the brim with complaints of fraud and poor after-sales servicing by some of the more prominent ‘online-only’ companies. The rush to avoid physical retail stores should not be coupled by a drastic reduction in overall smartphone ownership experience.
Another possible disadvantage is whether online-only will bring in big numbers. Though Motorola has certainly shown it can, it still has a long way to go to catch up to physical retail kings like Samsung and Micromax.
Will online eventually trump the physical store? The best examples of this battle are Chinese firms Gionee and Xiaomi, which have taken opposite approaches to the Indian market. While Gionee is slowly building its physical retail network and avoiding an online sales strategy, Xiaomi does only online. The winner will best exemplify how Indians will buy their smartphones in the years ahead.