Phone commerce: Heads or Tails?

Pareto distribution or the 80-20 rule states that 80% of effects come from 20% of the causes. The theory came about when Vilfredo Pareto noted that 80% of the land in Italy was owned by 20% of the population. Popular observation in retailing is that 80% of sales come from 20% of the products or 20% of the customers. In the last decade, e-commerce businesses realized significant profits out of selling small volumes of hard-to-find items to many customers instead of only selling large volumes of a reduced number of popular items. The total sales of a large number of items & customers in the remaining 20% came to be known as The Long Tail. ”This has gained popularity in recent times as a retailing concept describing the niche strategy of selling a large number of unique items in relatively small quantities – usually in addition to selling fewer popular items in large quantities.” Chris Andersen popularized this concept through a Wired magazine article and then his book. The 80% opportunity is the Heads business & the 20% opportunity is Tails.

In India since 2005, phone commerce is disrupting brick-and-mortar commerce in similar ways as e-commerce did in the US since 1995. While all attempts at phone commerce at scale have been driven by getting a piece of the high-volume-low-margin 80% (Home Shop, Indiatimes Readers’ Offers, Naaptol, etc.), what has worked for them are actually the 20% products that are exclusively available by phone or the 20% markets where customers do not have convenient access to the product category. In other words, market access is the primary driver for the phone commerce business at this time rather than cost or convenience. Discounts and offers can drive trials and turnover, but market access is essential to drive repeats, word-of-mouth, brand, profits and therefore true value creation. The more the industry understands this essence, the more we are likely to succeed in the coming years.

In the process of helping brands and retailers create an alternate direct-to-consumer sales channel using the phone (via phone pe deal), we are exposed us to a diverse set of product categories, geographical markets and customer segments that help us learn the market. Brands and retailers that seem to be addressing the Heads business at the outset are only successful doing phone commerce as a Tails business. Those who understand the power of the Tails business are able to quickly scale it to monthly sales of 1Cr+, while those who are trying to force the Heads business are banging their heads against the wall while bleeding through the nose.

Admittedly, it is getting hard to not scratch the itch to build our own consumer brand, to practice what we preach, to snatch the whole pie of a large market. However, it requires us to focus on a specific consumer, specific need, specific product and all of that good stuff. As the wise man said: “focus is not about what you decide to do, it is about what you decide to not do”. We have been exploring a few options on the table to build a compelling brand, and with each attractive choice we want to make, there is a lesser attractive but attractive enough choice we do not want to let go. Something says, there is a way to create an institution that can do it all. Phone commerce at the core and many owned brands addressing many Tails.