Celebrity endorsement - Never 'just do it' !

Nike and its tumultuous history with its brand ambassadors is a real case study. After Tiger Woods, Oscar Pistorious, Lance Armstrong, and very recently , it is now the Tennis sensation Maria Sharapova who has given a headache to Nike and heartache to her fans world wide.

Nike recently terminated its contract with Manny Pacquaio after what they termed as his 'abhorrent' comments on LGBT community.
In the latest round of strained relationships with its brand ambassadors, Nike this week severed ties with the 28 year old five times grand-slam champion Maria Sharapova after her shocking revelation of having been  tested positively for a banned substance - meldonium at Australian open earlier this year.

Back home, Snapdeal had to bear the brunt for its brand ambassador Amir Khan's comment on the intolerance issue in the country which took a political turn.

Such incidents demonstrate the risks that brands are exposed to, while nominating a brand ambassador. While having a celebrity brand ambassador is almost a norm and not a choice in several industries and product categories, the risks of associating with a celebrity are as high as the reward.

Obviously, any such association demands a great deal of focus on personality alignment between the brand and the prospective ambassador, an important but grossly ignored concept.

It is imperative to mention here that the celebrity personality in today's highly networked truly global world is no more only about how they do their job, like  modeling, acting or sports etc, but also their social, political and cultural views and inclinations. Again, while these are more public in nature, due diligence is of utmost importance about their personal lives. Tiger woods' and Oscar Pistorious' cases testify this argument.

Brand managers blindly expect the positive  personality rub-off from the celebrity to their brands without taking into consideration a host of other factors that must be looked into.

Some of the important factors are -
# The individual and the collective personality of the celebrity
# The desired brand image of the product
# The synergy between the first two personalities
# The overlaps and counter-laps between the endorser and product personality

While the first two factors are extremely important to derive at what are we dealing with in terms of possible association between two personalities, the third factor helps in understanding whether or not there is a broad alignment between the product and the celebrity. However, it is most often the fourth factor which is blatantly ignored, and often to one's own peril.


The counter laps or the points/occurrence/frequency of contrasts between the two personalities(the endorser and the product) must be closely researched and debated before closing a brand endorsement decision. The most important decision here is what aspects of the celebrity's personality may not/are not - align/aligned, with the core brand personality and its desired brand image.

Finally, a brand endorsement is a very expensive decision for any marketing manager and a thorough due diligence is not a choice but a compulsion to avoid foot in mouth situations that hurt the brand and the company. This may very well help in avoiding some issues altogether while mitigate ill-effects of others.

The Indian e-commerce Industry – Boom or Bubble?

The e-commerce euphoria in Indian business landscape is accentuating and investors are queuing up for putting their money into the ‘future’. Within the last 15 months foreign hedge funds, asset managers and investment firms have invested almost $4 billion in just 26 Indian technology and e-commerce start-ups.

A recent report published by UBS on e-commerce in India suggested that Indian e-tail market—which is currently valued at $16 billion will grow to an astonishing $50 billion by 2020. The report also projected that the ‘loss making’ sector will begin to make clear profits by 2020.


While such positive projections for the sector is definitely encouraging, some deep dive is needed to bring out the realities of this seemingly simple but grossly misunderstood business. Indian e-commerce industry is at a fascinating point of its journey, but one needs to have a more realistic view on its growth engine.

The Rosy Picture

The Indian e-commerce sector received more than $5 billion in funding in 2014, compared to $1.6 billion in 2013 and $760 million in 2012. Of this, in 2014, Flipkart raised some $1.9 billion while Snapdeal found about $1 billion in funding.

Together, these two online shopping firms are now valued much, much higher than the total market capitalisation of India’s major brick-and-mortar retailers, which have dozens or even hundreds of physical shops

A major reason cited for strong growth of online retailers compared to brick and mortar retailers is latter's capex and operational efficiency requirements  which restrains their ia do not have enough bandwidth or speed to counter e-commerce retailers.This bestows upon a huge opportunity for scaling e-commerce segment to new heights, considering an estimated $ 500 billion retail market in India.


The phenomenal valuations for India’s e-commerce companies are based on the premise that Asia’s third-largest economy presents a vast opportunity for online retailers. Specific reasons cited for optimism around the industry are as follows:

• Internet population - With 200 million active Internet users, India is next only to America’s 250 million and China’s 550 million internet users 
• Rising incomes levels – India’s per capita income has risen to $1,500 increasing the purchasing power, especially for 350 million strong middle and upper class 
• Demography – Two-thirds of India’s population is under 35 -- the demographic that makes up the largest share of the country's Internet users 
• Expected long term profitability of e-commerce firms – With the market maturing and consolidating, the discount regime will fade away improving profitability of the companies 
• Drawing parallel between India’s e-commerce market with that of China’s – India is often looked upon as China of mid 2000s and lot of analysts draw a parallel between how the Chinese markets grew from then till now, to how the Indian market will grow from now to till the next 10 years

A Rose without thorns? Not exactly…

To the anguish of many, the highly anticipated deal between Alibaba and Snapdeal fell apart in the month of March earlier this year. The reason behind the deal was disagreement on the valuation that the Indian firm sought. Apparently Snapdeal was looking for a valuation between $6 billion and $7 billion while Alibaba wanted to commit for a valuation under $5 billion.

Revenue vs Losses

Many analysts believe that the valuation of e-commerce companies is a tricky area as there is lot of untrend-ed future cash flow, which is largely aspirational, and a high level of gut feeling that comes into play during valuation discussions. Interestingly, more often than not, these e-commerce firms who are seeking funding based on certain valuations aspirations, are not making any money at the moment.

Mr K. Vaitheeswaran founder of Indiaplaza.com says, “E-commerce is a hard business. You need time and scale to make money. But at some stage there must be an intention to make money. I think there is no plan to make money because of the infinite supply of investment capital. I’m not surprised they are not making money because they are not even planning on making money”

According to the USB’s report, Flipkart, Amazon India and Snapdeal reported a combined revenue of $85 million and a loss of $163 million in FY14. To put it simply, for every $ earned, $ 3 were spent by the companies.

Globally, Amazon.com, has not had sustained earnings even after two decades of operations. It became profitable in 2007 but since then earnings have been dwindling. It reported a net loss of $241 million in 2014.

Apart from the intrinsic issues pertaining to the valuations, profitability and business models of e-commerce companies, external issues such as government’s digital investment, digital infrastructure, regulations and policies are major challenges for the Indian e-commerce industry.

• India has been placed at 115th rank on broadband speed in a recent united nations’ study on ecommerce environment 
• India’s regulatory environment for e-commerce remains unclear as the government is strongly opposed to the idea of 100% FDI in B2C ecommerce, often citing close environment in China and Japan 
• India’s tax authority has also had troubles in aligning tax laws for the e-commerce industry leading to arbitrary actions which has affected the overall business ease in the segment. 
• As per The United Nations, India ranked 83rd out of 130 countries in terms of its e-commerce environment, judged by factors such as the number of Internet users, availability of secure servers and credit-card usage 
• The AT Kearny’s 2015 Global E-commerce index based on parameters such as online market size, Consumer behaviour, Growth potential and Infrastructure was published recently. India failed to even make into the 30 country list.

Just as China, India? No way…

Flowery comparisons have been made between Indian and Chinese e-commerce markets and many have conveniently believed that just like the e-commerce sector grew by leaps and bound in China, the fate of the Indian e-commerce market will be a replica.

E-commerce market of top-10 countries and the growth recorded on last year

Unfortunately, there remains host of differences between the two markets which need a sincere mention:

• At $1,500, India’s per capita income is less than a quarter of China’s $6,800 which does not seem to be catching up anytime sooner 
• China has the biggest e-commerce market volume in the world at $ 426 billion which happens to be about 85 times that of India’s e-commerce market, just too big to compare at this point 
• Chinese internet users are much more sophisticated users than that of Indian users. One third of its online users are connected continuously while 58% are online between 2- 4 times a day 
• Also, China, has an e-commerce market which is more than 10 times bigger in terms of contribution than that of India. Interestingly, China also happens to have a bigger online market contribution then more developed countries like US, Japan, France and Germany. UK is the only market in top-10 markets which has a higher contribution of e-commerce in overall retail market than China 

Online retail contribution as a % of total retail

Hence, the comparison between the two markets and countries on this front suggests that it may not be a fair assumption that Indian now is what China was 7-8 years back and what worked for China then, will work for India now.


Conclusion

With only 39 million online buyers, that translates into approximately 3.2% of the total population, online market place still is at a nascent stage in India, Though the 27% growth in the e-commerce market in India in 2014 looks flattering, the high growth figure is actually due to its very small base. The sector is currently seeing headwinds in terms of sky rocketing valuations and huge employee benefits, but monetising and making the industry profitable will remain a challenge in these times.

Top-10 e-commerce markets by the AT Kearney's Global e-commerce incdex

Government support is absolutely critical on infrastructure point of view to increase user penetration. Also, a more transparent policy on regulation and tax structure will go a great way to strengthen the fundamentals of e-commerce industry in India.

E-commerce industry in India is going through an aggressive transformation and while it can be the sunshine sector for growth, it is imperative to understand the limitations and risks in the sector, and handle these risks effectively. Addressing these risks should be our top most priority to avoid this boom turn into a bubble. It is possible only when euphoria over virtual cash flows, imaginary cash rich P&L statements and outrageous valuations makes way for a structured growth plan across the business parks and government corridors, backed by more realistic aspirations, but of course, with the same enthusiasm.


Cheers,