Interview: Rohit Bhagat: "You Must e-Xploit Reach And Richness"

You could call him an e-vangelist of the New Age Economy. If there's one consultant who's e-xhorting India Inc. to explore the potential of the Net for its brick-and-mortar businesses, it's Rohit Bhagat, 37, the Head of e-Commerce at The Boston Consulting Group. He explains to BT's Roshni Jayakar just how corporations need to craft their e-strategies. Excerpts from an exclusive interview:

THE PERSON

NAME: Rohit Bhagat
AGE: 37 years
EDUCATIONAL QUALIFICATIONS: B.Tech, IIT-Delhi, 1984; M.S. (Engineering), University of Texas, US, 1986; MBA, Kellogg School, Northwestern University, US, 1988
TRACK RECORD: Management Trainee, 1986, BCG Chicago Office; Managing Director, BCG India Office, June, 1998; Head (e-Commerce), BCG, February, 2000...
HOBBIES: Golf
WHY BT INTERVIEWED HIM: Because he is moving to the US to head BCG's e-Commerce practice

Q. Rohit, the new economics of information will drastically change the focus of corporate strategy, won't it? How do you see e-Commerce changing business strategies, especially for traditional companies?

A. There will be few companies, whether in India or abroad, that will remain untouched by e-Commerce. And the impact will be felt across a continuum: from providing only information, to providing customised interactive experience using e-Commerce, to supplement the existing physical channels. Different businesses are going to participate at different points of this continuum. But those businesses that gravitate more towards interactivity and personalisation are the ones that are truly going to benefit.

There are 2 things that distinguish e-Commerce from other forms of business. One is the incredible reach: the number of customers a business can access. Today, because of limited connectivity, reach in India is not as high as it could be in the consumer space. In the business space, however, the level of connectivity is good.

The second distinguishing point is richness, which comes from content-heavy, personalised interaction with your customer. In the days gone by, the only way to do this was to go through direct sales. If you put up a billboard, it's the same message to everyone. If you broadcast something out on radio, it's still the same message. In the Net, for the first time, you have a medium that allows you the advantages of both richness and reach. Companies that truly exploit the Web will be the ones that will exploit these 2 dimensions.

Which of them will help build stickiness, bringing customers back to your site?

It is fairly easy to attract people for the first time if you spend enough money. It's that much more difficult to create the affiliation that makes them stay. Affiliation is about whose interests the new business represents. Here, richness--or depth--and detail about products and customers can play a role. Garden.com will run chat-rooms where amateur gardeners can talk to each other. This leads to the building of affiliations: emotional connections with customers on dimensions other than pure transactions. It can even be something that has nothing to do with products.

But e-Commerce has to be much more than merely Web-ifying your existing business model, doesn't it?

If there's an existing business, with a value chain behind its proposition, and all you're going to do is to put up a Website, and say, `We are the same old company, same old product, but you can find us on the Web,' you're not doing justice to the power of this medium.

When someone comes to a retail- store, you are fortunate if the salespeople are well-informed and the inventory is stocked. You have to make the customer experience on the Net far superior. You have to have a complete on-line catalogue, complete information on delivery-times, availability, and pricing, and also allow comparison-shopping and guarantee delivery-times. Put all these capabilities on the Web, and you will have created a fundamentally-different shopping-experience.

By operating with the different economics behind that experience--potentially, lower labour costs, cheaper real estate costs, and so on--you can reduce the price. A combination of better service and price is a potent competitive advantage. Instead of Web-ifying an existing business model, companies should strive to create value through such new models.

It is often believed that on-line commerce and off-line commerce are different worlds. Are they?

No, they're connected. There are a lot of products out there which people have a need to touch and feel. Take trousers. If there's a Website that allows a customer to give you her basic measurements--using an application like Lands End's Personal Model--and select the colour and the material, and the item can be picked up at the store--where there will be a salesperson to deal with on-line customers--that's a powerful way to combine on-line searching with off-line delivery and convenience. There are many situations where a multi-channel approach is going to be a far more powerful way of addressing customer needs than the either-or approach.

7-Eleven is a chain of small convenience stores in the US. If you are in any major city, you can be sure that there will be a 7-Eleven within a convenient distance. Trucks go to these stores twice a day to replenish them with their normal range of items. Now, you could piggyback on this distribution-system to home-deliver the items that people are buying on-line from this chain; after all, a store is a maximum of 1 mile away. If people don't want to pay on-line, they can come to the store, where there's a cash-collection system. This is a creative way to get over 2 hurdles: logistics and payments.

In India, both are problems. So, can we find a creative way of combining an off-line channel with an on-line channel to overcome them? We don't have an organised retail chain like 7-Eleven. So, there could be a series of regional tie-ups, with chains in some cities or with post-offices. You will have to strike several small deals as opposed to a single nationwide deal. But, as we all know only too well, if you want to be successful in India, you have to innovate.

In the b2b space, the biggest problem is the lack of confidence that you will get the appropriate quality on time at a reasonable cost. So, you should grow a b2b portal with a terrific brand, whose proposition is that you will only allow pre-qualified vendors, who need to satisfy fairly stringent criteria in terms of their capabilities and promise. This pre-qualification can be executed in the form of due diligence. Once a pre-qualified vendor doesn't deliver, he should be removed from the marketspace. So, you will create a high-quality marketspace, with only handpicked, trustworthy, creditable suppliers, with whom buyers can do headache-free business.

You must also think through the revenue model carefully. Will you take a slice of the price as a transaction-fee? Will you charge subscription-fees for pre-qualification as a buyer or a seller? Will you also install the software to actually conclude the transaction, and charge for its use? Will you charge hosting and maintenance fees?

Suppose I am a manufacturer of metal, and have some vertical industry knowledge, what I know is important to customers. Can I leverage that knowledge to create an electronic marketplace? Can I create the marketspace in a way that makes it easy for a potential customer to come there, and place an order for an alloy with a certain content of metal `x' and metal `y'? Can I build in a functionality that makes available an on-line directory of purchasers? Someone who is already in the business can provide this quite well. So, I see no reason why an incumbent, a traditional company, cannot decide not only to maintain its present position, but also to leverage the knowledge that it has to create a bigger business for itself.

What kind of transformation would be necessary for a traditional player to make this shift?

While generalisations are difficult, it may make sense to have your e-Commerce start-up independent from your existing organisation. Why do you need to have separate organisations? Because three things have to be different. First, it requires a much greater pace than that of traditional organisations. Second, you need different capabilities--people who are software-savvy, marketing-savvy, and comfortable with the Net--who may be needed to recruited externally.

And third, there's the more mundane issue of compensation because people who are working in the Netspace look for an up-side in the form of stock-options whereas the existing structure may not allow for that. Our experience tells us that it works well to have different organisations to begin with. Don't hide the Net organisation somewhere beneath the traditional organisation because it will never get the focus and kind of attention that is required to make it flower and grow.

It is feared that the Net will drive down prices, and all products will look the same. Will all goods offered on-line eventually become commodities?

Brands are even more important on the Net than in the physical world. Because the Net allows suppliers to compete against each other, and a lot of the classic barriers to entry are eliminated, there is a pressure on margins, which leads to commoditisation. On the flip side, people are doing business with nameless--often, faceless--entities. So how do you develop trust in your partner, that he is actually doing business with someone who is credible? You do it through a brand.

How, in this huge confusion of alternatives, does a customer actually find the person she wants to do business with? The brand will guide her to the right choice, and the comfort that she can do business with you. That's the role of the brand on the Net. So, I do not believe that all businesses will be commoditised. The reason is the point about richness. If you can, through your creativity, create a personalised, customised offering, you have a chance of breaking out of commoditisation.

For example, there is a significant amount of pressure on margins in on-line trading. Yet, the company that holds the maximum marketshare also has the highest cost per trade. Charles Schwab charges more than its competitors. But its response is to improve the service by providing investment advice, rich research, by creating ease of functionality. If you create high levels of interactivity and customisation, you won't suffer from the commoditisation that seems to be a natural outcome on the Net.