Why Privately Owned Brands is the Only Way to Make Money in E-commerce?

Flipkart recently announced the launch of its own brand in tablets, Digiflip. The brand existed since 2012 as a computer accessories (headphones, speakers, pen drives) brand. But this is not a new or surprising thing. Most of the large e-commerce companies have launched many of their own brands and placed them close to other brands with strategic pricing, feature set. Slowly growing the screen space for their own brand and promoting them better.

Why would a multi-brand market place do that?

The answer is simple, this is the only way to make money.

In a thin margin competitive environment, with standardised MRP, MOP, etc. there is hardly any room for marketplaces to make money in fast moving e-commerce friendly categories like Electronics, Consumer durables, and even Clothing and Footwear.

There is a continued high cost of bringing, retaining, bringing back the customer to buy online with them. Added is competitive pricing pressure with online and offline peers. Needless to say the competition with unorganised retail, and wholesale cash and carry retailers.

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The economics further goes for a toss when huge investments are made in delivery, warehousing, packaging, uber high consumer experience, etc.

And to make sense in all of above, higher net contribution margin is very important. Which comes from owning a brand, enjoying heavy margins on same, pricing is better then visible brands, and playing heavy on discounting, offers and combos, etc.

This process is not very different even in offline organised retailing, where suddenly one fine day you shall start seeing a home brand of retail chain, occupying much large shelf space, and almost disappearance of leading brands.

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Interestingly eCommerce is a great way to creat new brands especially when you can place it along with other leading brands on screen.

Wespro, VOX, are classic example of old brands that got created by selling on Indiatimes, Homeshop18 and Naaptol. Where they got an added advantage of going on TV, print media with these online retailers.

But how do other established brands react to it? Does it impact them?

Well, certainly it may be not their loved choice, and there is an impact.

See it this way, if I invite you to set you up on date with a hot girl, and while we meet together with her, I come more prepared to make her fall for me, including multiple shots of axe. And not to miss the point, that if I am setting you up with her, I know her better then you, including her choices, likes, etc.

But do these leading brand have any option, guess not. Even though they get a share of 50% screen space! and revenue potential, the numbers are still huge and the choice still resides with the girl.

And yes, the 50% is a near accurate assumption. Most of large retailers can enjoy upto 40-50% revenue off a category where they are placing their brand.

Finally, for the consumer in India, not many show a strong brand loyalty, the are open to experiment, love saving few coins over consumables, routine purchases etc. so long as their basic price value expectation is met, they really. Don’t care what is the tag on the product.

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What is important is packaging, any brand can fly in this country, if it looks like a premium brand,  the ad is on tv, print and it is widely marketed.

Large online marketplaces have all they need to channel their customers towards their own brands.

And yes of course, single brand FDI is allowed in India! :)

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