Is it Reliance Digital vs Chadha uncle now?

Why should Reliance Digital position itself as an alternative to Chadhaji's store?
It simply doesn't make good business sense, says Sudhir Bisht.
Illustration: Dominic Xavier/Rediff.com

As I was working out on the cross-trainer at my gym last week, headphones attached to FM radio, an advertisement blared out a conversation between a father and a son.

The advertisement was in Hindi and the English translation goes something like this:

Son: Papa. Who introduced you to the Internet?

Father: You, my son.

Son: Papa, who helped you to configure your e-mail account?

Father: You, of course, my son. But why are you asking this?

Son: But when it comes to buying a laptop, why do you rely on Chadha uncle?

Father: Why, what's wrong with Chadha uncle? He gives a bag free with the laptop.

(Another family member, perhaps the daughter of the family, joins in here)

Daughter: Even Reliance Digital is giving freebies and offers worth 20,000 rupees.

Father: OK, let's leave Chadha then.

The advertisement struck me for its in-your-face kind of challenge to a small neighbourhood store that sells laptops in a middle class locality.

It is a given that most new generation retailers, whether they are of the online variety or offline, aim at the large business that is shared among 12 million (1.2 crore) small format stores. But I am yet to come across any direct reference to the small store by these big retailers.

In fact, when Reliance Fresh was launched in 2007, there were violent protests in some parts of India. A report on Rediff on May 12, 2007, stated as under:

'Petty traders and vegetable vendors on Saturday vandalised three of the five Reliance Fresh food outlets in Ranchi in the first such attack on a modern retail chain by those feeling threatened by it.'

'Around 200 people barged into the stores, which sell grocery, fruits and vegetables, and smashed glass panes and pulled down the shelves as Reliance Fresh staff ran for cover.'

'A retail outlet at Lalupur Chowk became the first target, followed by one near Tagore hill and another near the Plaza cinema in Ranchi.'

'City superintendent of police Richard Lakra told PTI that the protesters pelted the stores with stones, injuring a constable when the police tried to stop them near the Tagore hill shop and also attacked and damaged passing vehicles.'

It may be recalled that in 2007, the then Uttar Pradesh CM, Mayawati, had ordered the closure of Reliance Fresh stores after protests from traders and political activists.

So I was quite surprised that Reliance Digital chose to advertise its brand with such an open show of rivalry with traditional small consumer electronics stores.

Let me try to figure out the personality of the shopkeeper 'Chadhaji' that Reliance Digital seeks to take on. Let me try and guess the modest business model of the laptop seller.

The retailer may be well known to the family that I mentioned above. It is quite possible that Chadhaji has a close personal relationship with his customer.

He may be always on his toes, keeping track of the financial status of his longstanding customers.

He may be noting in his diary to keep track of the customers whose kids may be entering college and may need a laptop to augment their knowledge besides depending upon textbooks.

He may even have been a morning walk partner with his customer and may have been soft-selling the idea of a laptop to his customer during the morning walks.

The customer may be saving up to buy a laptop from his friend Chadha and the latter may have even promised to gift a laptop bag free for the special customer.

The deal of Rs 55,000 may have been cooking over a long, long time and Chadha must be rubbing his palms in anticipation of 'deal closure' until the son of his customer, impressed by the razzmatazz and glitter of Reliance Digital, brings all his efforts to naught.

Chadhaji may be buying his stock of laptops directly from the manufacturer or from the distributor. He must have invested in about 20 or 30 laptops.

My market survey reveals that the store's margin on a laptop is between 4% and 6% for small sellers.

But Chadhaji's settled business of selling about 20 laptops in a month will now face an immense challenge from Reliance Digital that has now positioned itself against the tiny neighbourhood laptop store.

It is not as if Chadhaji didn't face challenge from any quarters before Reliance Digital announced its keenness to fight him in the market place.

His biggest threat always came from the grey market of Nehru Place in New Delhi where laptops were sold at a price that was more-than-a-bit-cheaper than his shop. But local customers still preferred the neighbourhood shop as they could be assured of good after-sales service.

And Chadhaji has enough goodwill with laptop companies to ensure that the after-sales service to his customers, within the warranty period and sometimes even beyond that, was prompt and perfect.

Chadhaji's shop faced threats from the Flipkarts and the Amazons of this world, but he was a part-time vendor for these online retailers too.

Many times the laptops from his own shop were packed and sent to the neighbourhood when a local customer bought the product online from Amazon or Flipkart.

No doubt, the margins were much squeezed in such sales, but yet Chadhaji was able to hold on to his turnover targets for which he got extra benefits from the laptop companies.

Another thing about the online marketers was that they never campaigned against the small shops. Their business model was high-volume, low margin and even no margin or negative margin, but it was not openly hostile.

It may have cut the market share of the local shops, but the fact is that the online biggies also created additional markets by aggressively promoting the products.

Many times, a local customer would check the prices of a laptop on the Internet but would come and buy the same from Chadhaji.

The customer demanded price equivalence with the Internet market prices, but Chadhaji was able to convince the customer to agree to a negotiated price.

He would often swear by his after-sales service and would come up with an emotional appeal to clinch the deal in his favour.

But the Reliance Digital advertisement has made Chadhaji a worried man.

The company, belonging to the biggest corporate house of India, has targeted his business openly. It is now loud and clear.

It is Reliance Digital vs Chadhaji.

I leave it to the wisdom of Reliance management to evaluate if this kind of positioning is perceived to be anti-small business or not. I think this campaign also pits the big corporate in a David Versus Goliath situation.

Reliance Digital, which is part of the Rs 69,000 crore Reliance Retail, which comes from the Rs 430,000 crore Reliance Industries stable can position itself as a champion organisation that gives its customers a world-class shopping experience.

It can choose to position itself as a company that gives maximum value for lowest price.

It can position itself as a company that offers the best platform for upgrade deals.

Reliance Digital as a company can position itself as a company that allows its customer to choose any product and walk away without paying a single rupee with a pre-approved, zero down payment, 60-month EMI plan.

So why should Reliance Digital position itself as an alternative to Chadhaji's store?

It simply doesn't make good business sense. In fact, it projects a bad, anti-small business corporate image.

The greatest business icon of my time, the late Shri Dhirubhai Ambani, would have certainly scoffed at such an idea.

Sudhir Bisht, PhD, author and columnist, writes from New Delhi. He tweets at @sudhir_bisht