Set up your own online brand

By Gaurav Singh Kushwaha

From being touted as the next big thing to the speculations about the dream being over, the Indian e-commerce industry has seen it all in a short span of time. After multi-brand retail, the industry is poised to ride on the third wave, which is building private labels online.

A private label online brand focuses on controlling and optimizing the whole value chain from designing and manufacturing to the last mile delivery of the product, hence providing value in terms of price and quality to the consumer. The US e-commerce industry, being on the cusp of the whole revolution, took 15 years to achieve this. It took China just five years and should take India an even lesser amount of time.

Investment criteria

The amount of capital required to build a private label brand online is significantly higher than that required to build a multi-brand retail platform, since it requires resources and capabilities to build the whole value chain even to build a minimum viable product. You will need Rs. 20-Rs. 40 crore as initial investment. If you plan to start small and build the value chain in a phased manner, one can start off with angel investment. It works best for an unproven or niche segment, where the cost for proof of concept is low. However, if you are entering an established vertical and a hyper-competitive market like generic e-commerce (apparels, books, electronic), it is recommended to scout for VCs who not only believe in the value proposition and the use of capital, but also serve as your business partners/mentors. Don’t be influenced by the quantum of money the VC puts in. Rather, one should look at it as a mutual agreement where both parties can learn and grow.

Infrastructure and HR

Warehousing requirements for private labels are higher than other brands, since they don’t have access to an established chain of manufacturers, national and regional distributors who hold stocks. Hence, while choosing number, size and location of warehouse(s), remember:
1) You may have to store all the quantity you need till your next production cycle is complete.
2) Since most manufacturing processes will have minimum quantity requirements per run, you may end up with more stock than you actually require as per the point above.
3) A private label has to decide on the inbound and outbound logistics in detail. You have to evaluate the pros and cons of having a centralized warehousing system vs. distributed warehousing near the vendor locations.

Here are a few points to consider:
> Bulk goods movement vs. individual item shipment
> Tax implication of inter-state delivery of goods
> Distributed workforce vs. centralized workforce
> Whether you will sell from stock or manufacturer after the order has been received

Legal needs

Branded goods in India, broadly, fall under the excise regime. As per the law, you are liable to pay excise duty, even if you outsource the actual manufacturing. However, there is no double taxation here so in case your vendor has already paid the excise amount, you just need a declaration from him stating the same.

In case you manufacture yourself, you will need permissions from the local municipal department, fire department and pollution control board. Also, if you employ more than 10 workers in your factory, make sure you comply with labor and factory laws.

Manufacturing modes

It’s always better to manufacture in-house and run a production unit to ensure complete control over the quality of the product. If done efficiently, you would have the leeway to pass on cost savings from manufacturing as benefits to the end consumer.

Theme and structure of web store

The website of an online store is the first touch point with the user, which can make or break the deal. Make sure your website is easily navigable, appeals to the user and contains enough information to educate the customer about your products and policies.

A robust search, product suggestions and broad categorization on the most popular categories would make it much easier for the user to browse your website.

Apart from the regular payment options such as Netbanking, debit cards and credit cards, you should also consider Cash on Delivery if your business supports it. Since most companies are still in the process of building a trustworthy brand, it helps to acquire customers who are skeptical about the security mechanisms.

Pricing strategy

Indian consumers are very price-sensitive; hence the pricing model can make or break any business. Pricing shouldn’t only be benchmarked against the competitors and market leaders, but also justify the value provided to customers. Do a cost-benefit analysis from a customer’s perspective and decide on prices.

Building the brand

Marketing efforts are typically spread across earned media, owned media and inbound marketing channels. Streamlining and optimizing your marketing efforts across these channels i.e display advertising, social media, search engine optimization, search engine marketing and inbound marketing is what every e-commerce portal should look at to develop a strong brand online.

Marketing a brand online is a process of experiment, measure and learn loop at every stage. However, it is very easy to fall in the trap of measuring your efforts against vanity metrics such cost per click, visitors, click through rates and ignoring actionable metrics.

This story appeared in the July 2012 issue of Entrepreneur.

smementor@moneycontrol.com