Can Nykaa teach Amazon, Flipkart a lesson?

Unlike some of India's largest online retailers, which are secretive about data and use it to cut better deals with brands than their competitors, the Nykaa is monetising its insights.
If it is is able to do so without giving away any of its advantages to competitors, it could be on to a winning model, says Alnoor Peermohamed.

When you are a company that touches almost all of India's online beauty and cosmetic products shoppers, there are a few perks you enjoy. Brands not only look at you to help sell their products, but also turn to you when they need to study the end consumer better. So, why not charge them for it?

Nykaa, India's largest e-commerce marketplace for beauty and cosmetic products is doing exactly that.

The company claims it gets 9 million unique visitors on its platform every month, and if we extrapolate this over a two-to-three-month horizon, it would be the case that the entire set of 16-20 million online women shoppers in India visit its website. These customers are involved with the site in various ways; some explore the products and then head towards the shopping cart, some watch the beauty video logs, some blog and so on.

All of this throws up a more nuanced understanding of the Indian beauty market. The Indian beauty industry has for a long time been segmented into premium branded products and cheap unbranded products, but in recent years, the lines have blurred as e-commerce has opened up new channels for marketing, sales and promotion.

"They [big global brands] keep asking us for data, so we give it to them. We give some data for free and for some we charge," says Falguni Nayar, chief executive officer (CEO) of Nykaa. "We are willing to share data, but we have to analyse a whole lot, we don't see why we should give it for free. It's very valuable."

While Nykaa's eyes are keenly set on making its core business of selling cosmetics to women online achieve Ebitda (earnings before interest, tax, depreciation and amortisation) profitability by this September, it says data services too can become an offshoot business. The latter will not exist without the former, so Nayar says that the main focus for Nykaa will always be to reach out to more customers. Customer data is a secondary byproduct, albeit a valuable one.

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Brands are eager to learn how customers behave and what they want, helping them tweak their offerings accordingly.

For instance, a large cosmetics brand (which Nykaa prefers not to name) had a new product launch that saw a lot of interest from customers, but did not convert into sales. "Customers added it to their cart, but didn't go ahead with the transaction," says Nayar, a former investment banker.

This prompted the team from Nykaa to personally call some of these customers and ask them what their concerns were.

Acting on the insights provided by Nykaa, the brand addressed the concerns that many customers had with the product and its launch communication. While this meant Nykaa finally started receiving orders for the product on its website, the brand too ended up with a better understanding of the things that Indian customers were worried about.

"We can study the entire activity of the customer on our website, but that's a lot of effort from our side to study and watch customers, and then give them [brands] feedback. We are willing to share, but then we will obviously charge, because it's a lot of work for us as well," adds Nayar.

This for Harminder Sahni, a retail consultant and managing director of consultancy firm Wazir Advisors, is what differentiates the online world from the offline world.

Online retail by its definition is data driven he says, whereas offline retailers struggle to collect data about their customers and purchase trends.

Offline retailers for years have tried gimmicky methods such as installing closed circuit television cameras to see what products customers might be interested in but do not pick off the shelves, or studying products they leave behind in their shopping baskets, in order to sell brands the data and earn additional revenues. But it has been far too expensive for them to make a meaningful business.

"This in the online world is very easy. Online is data driven. It's not that the offline retailers don't want to be data driven, but they're just not able to capture that. These people [online retailers], because of the connectivity know so much about the consumer," says Sahni. "How they use this data, how they monetise it is up to individual companies."

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Not all online retailers are willing to share these kinds of insights with their brand partners though. Some of India's largest online retailers like Flipkart, Amazon, Myntra and Jabong are very secretive about their data, using it to cut better deals with brands than their competitors.

While gaining direct business benefits through data might make more sense for some companies, if Nykaa is able to find a balance between monetising insights without giving away any of its advantages to competitors, it could be on to a winning model. Nykaa claims its margins aren't spread thin like other e-commerce marketplaces, so it isn't selling insights to brands out of strain.

"We have brought down our marketing costs. Our digital marketing cost as a percentage of sales is already down to 12 per cent. We've also kept our packaging and shipping cost below eight per cent. So, we have worked very hard to get to a positive margin structure that can contribute to our overheads," says Nayar.