What is the best hyperlocal strategy for India?

Came across the question here on Pluggd.in forum.

If I take the question at face value, then it is at a very high level. It is almost like asking "What is the best means of transport on land (in India)?" The devil is actually in the details of what we perceive of this question. What do you mean by "best" (quality, cost, value, speed)? What do you mean by "transport" (for people, live stock, fragile goods, general goods)? What will be the volume, frequency of travel? Will it be in a desert? Metaled Road? By-lanes? Across highways? Rough off-road terrain? (Point being made)

Similarly, In this question we have the following variables: 'best', 'strategy', 'hyperlocal' and 'India' which has wide ranging and extremely swinging perceptions. Best for who? (vendor, manufacturer, service provider, consumer...)? What is a threshold to say something is strategic versus operational (from a near term cash-flow perspective? or a long term organic growth perspective?) What is hyperlocal? Which India? (The 4 broad demographics in a tier-1 city? The multitude of BoP class which can only be classified on economics, but gets hairy when we apply cultural context? Aspirants from tier-2, tier-3?...)

Let's specifically say for hyperlocal, the challenge with any discussion around hyperlocal quickly surmounts to what each of us perceive as hyperlocal (and also based on what categories already has or has-not worked in some distant markets). Some agree that it is around a physical boundary (narrow geography) while others vehemently deny a concept of geography involved at all (the theory of nearness to an idea/concept  which does not encompass geography is also accepted as hyperlocal).

As an example, let me assume that the flavor of discussion I would like to ‘barely attempt’ to provide my opinion, contains the following key constituents: Narrow-geography based on your immediate current location, Relevance, Individual targeting, Retail and Tier-1 city as a domain (even this is at a very high level).

Then IMO, (at a very aggregate level) India and BRIC style developing nations will be the most equitable places where hyperlocal will thrive in the mid to long term forecasts.

Why? because the heterogeneity of the markets and the amount of fragmentation and decentralization in these nations are high (intuitively, that is, compared to homogeneous, big-box EDLP markets). As a hygiene-argument from a market-category perspective, demand analysis in such markets is way costlier if it has to be done by each SMB on their own. Currently even large well funded (offline retail) conglomerates in India suffer majorly from demand metrics which can significantly improve top-lines when applied well. (This assuming hyperlocal enables significant improvements on demand-chain solutions, which it resoundingly does).

A large part of Indian-metro population is cost conscious markets (specifically around dailies, staples, consumer durables and household services) as I understand it (Note that not all FMCG falls in this group, or beauty and restaurant services is avoided intentionally as that has its own segmented behavior). (Again, what is good for Mrs Khanna is not good for Mr. Iyer).

If you look at the market from the (stated) consumer perspective for the specifically stated categories, then IMO, we can ascertain that finding value (cause one is cost conscious) for what we pay in such heterogeneous markets is extremely painful. and hence, where there is pain (latent or otherwise) there ought to be innovative solutions which shall be reasonably profitable for all players involved.

There are many execution specific questions that pops-up when you generalize such arguments. What is the pain threshold? Will the consumer generally live with the pain in a latent mode until a hyperlocal-solution is offered? or have they already moved on with other alternatives with maximum utility (group-deals are already hyperlocal)? What is the segment size and the number of segments that can be herded with a single platform enabling dynamic customization for similar market segments at minimal cost for the solution-provider? Can it go to the level of relevance and individual targeting over a period of time? Can you apply consumer language for all of the questions and simplify the ‘value find’ use-cases efficiently in near-term? The nature of solution in itself is a huge debate. Add to that the number of edge-devices, maturity of the masses to soak up mobility solutions (or other such profile), technology, market-led innovations etc.. and we can keep this debate on for a long time in vaccum. Justifying an opinion to such interesting debates on a single-post on a blog is really hard without getting excited on every aspect of the problem-space. (Maybe further blogs)

Meanwhile, think through the following hyperlocal use-cases and apply your own perspectives:

• Collective collaboration at the community marketplace where vendors offer service-packs (electricians, painters, plumbers...).
• Community economics encouraging sustainable & experiential lifestyle involving gaming, community sharing (used items, car pool).
• Social engagements involving flash mobs, activism, common goal (as against common interest), social donors.
• Enhancing supply-side (sourcing) dynamics with stock and asset moments along with logistics, in-bounding, relevant auto-indents.
• Empowering producers (farmers) at the geo-fenced level with info enablers such as price flux, input source, weather, infra...
• Enabling 'catchment level' sales structures and program support elements empowering feet-on-street, reducing fiction costs.
• Community news, for the community, by the community enabling personalized channels and preferences.
• Transport details involving nearness, cost, mode, quality of experience (crowded) and alternatives.
• Near-store engagements enabling experience that are relevant for the moment-of-maximum exposure limiting the lead times to zero.

In essence #hyperlocal is an ability to focus on a market of 1 (or few) engaging with relevant info based on personalization in real-time, near-to where you are currently located. Its a nascent problem-space. There are no such thing as best strategies except to intrincically know your markets and to iterate. There are no experts who can predict the outcome of any of the myriad hyperlocal use-cases for India or anywhere globally either. We should therfore be cautious not to throw baby out along with the bath-water.

Value Erosion - Prisoner's Dilemma & Defections

My previous blog did evoke some interesting conversations on pros-cons on the Group Buying models. Mostly the argument for Pro group buying almost always veered towards group buying being a great model for service which has high-fixed cost and excess capacity. The examples almost always ended with Travel (Airline) and Hotel Industry and extrapolating that to SMBs!

To recap: High-Fixed cost services which has excess capacity (after recovering its fixed cost) tends to gain from every $ they earn for the same session (Airplane, Yoga Studio etc..) as the cost of acquisition is not significant there after. The Key here is "post fixed cost recovery" and "same session". This is a very Rational Viewpoint. The flipside is, behavioral economics, human beings and market dynamics are not Rational!

Lets take a Yoga Studio as in one of the examples. If the fixed costs were $2000 (lets say) per month (Lets call this a monthly session) and you have enough students who have already covered your cost. Now every additional student (assuming you have excess capacity) you add to the same session should be profitable for the Yoga instructor correct? Rationally Correct.

The challenge with this debate is exactly what the "all customer defects" scenario as per the Prisoner's dilemma presents. When the initial paying customers gets a wind of what you do to fill the remaining capacity of the Studio, they start defecting to wait for that Deal... and this catches on (is catching on). Airline and similar (Hotel) industry is only very few industry which can afford to operate in this model as people are 'pressed' to fly and cannot always wait for a deal. For everything else (which is not pressing), they will wait for a deal. This is already happening in the SMB markets in volumes as we speak. Regular paying customers are defecting to wait for deals. Also, they would now not mind to switch loyalty off the Merchants if someone else gives a deal.

We must exercise caution while extrapolating such models to SMBs right off. Unlike airline industry, the 'long tail' of similar merchants (Yoga, Cafe, Saloon...) is relatively much voluminous in a given city than a consolidated few flight schedules between two cities across airline players. which means, there will mostly always be a deal for me to defect.

When most customer's defect, then, the prisoner's dilemma feeds on itself to erode value out of the system. Talk to the SMBs to feel their pain and validate this.

A key metric on the current deal-seekers for Merchants now includes in excess of 50% (median) and as high as 90% in some formats of "existing" customers biting the deal! Did you add additional footfalls then? or are you defecting your current paying customers?

When most of them defect, the SMB will now be fully dependent on the likes of Groupon for filling seats to recover their high-fixed cost. Great if you are Groupon, Living Social, Google Offers..., Epic win if you are a Consumer, Sucks if you are a SMB. You know what SMBs will do if this happens right? (and what will be left of the business model.)

Bottom-line: The current avatar of group buying is just not a proven model yet and needs to focus on a whole lot of market dynamics to assure a equilibrium before we can claim that it works.