RETAIL MARKETING

Case analysis
Mukherjee, J., Bhardwaj, P (2016).
Jabong.com: Balancing the Demands of Customers and Suppliers .

NAME: SUSHMA ROY

EPGP02 047
Analyze the interdependency of Puma and Jabong.
How should Jabong interpret Puma’s new discount policy?

In the case, at that moment, Puma was 20% for sales in footwear category for Jabong.
And the models selected by Puma to go under new “No discounts” Policy used to
contribute 70% of that sales. For Puma, Jabong was a key strategic e-commerce
partner. Jabong dealt with Puma using the inventory model. Jabong bought the items
from Puma, and paid Puma irrespective of actual sales. Jabong helped to maintain
aggressive growth of Puma in e-retail, and utilised the extra margins provided by the
brand as special support like celebrity endorsed campaigns, better visibility, and
additional offers and optimised search options for consumers.

Puma’s management had decided to reign in the discounts offered throughout the entire
e-commerce channel in India. Therefore, management framed brand guidelines that
Puma’s sales teams had to incorporate in agreements with all existing and new e-retail
partners. Brand decided to provide a list of core articles that channel partners could not
discount or add in promotional campaigns with further discount. Products associated
with Puma’s brand image, or sales-volume-generating products.

In favour of E-tailers, Puma agreed to offer specially manufactured units that would be
offered only to some key online channel partners. The sales price and discounting terms
for these products were open for negotiation on a case-by-case basis. Also Puma
offered Old season merchandise to be sold at discounted prices at the discretion of the
retailers.

After the implementation of this new discounting policy, the data analytics team reported
that customers were still looking at the portfolio of high-selling Puma products, but many
were no longer buying, leading to a significant shortfall of Puma products against
planned sales. Such behaviour now posed serious difficulties for Jabong’s annual
footwear sales objectives in the future.

Jabong’s consumers needed special incentives to buy their favourite products which
were majorly best sellers, now falling in Puma’s No discounted list. The specially
manufactured range was problematic because these products were made for discounts
and had a high mark-up in order to give a better margin to the channel. These product
were less acceptable to customers, and therefore had to be sold at very high discounts.
These shoes ultimately became a loss for the retailers because the

In addition, these discounted products were available at all other online channels but
discounted as per retailer’s choice and capability of internal discounting, creating
confusion for customers and harming Jabong’s brand equity.

Also there were minimum order quantity requirements imposed for exclusive SMUs,
which could have an adverse impact on Jabong cash flows.
What is Jabong’s value proposition to its customers and suppliers?
Is there an inherent contradiction?

Jabong’s value proposition to its customers is to offer broad and vast selection of
products, superior buying experience, timely delivery, competitive prices, and a quick
resolution of problems. Jabong also provided cash-on-delivery services to reduce
customers’ anxiety about the risks and uncertainties involved in online shopping. Jabong
follows both an inventory model and a marketplace model. In the inventory model,
products are sourced from brands and stored in Jabong warehouse. In marketplace,
Jabong doesn’t store the inventory but takes care of customer service and returns.
Vision is to be the one-stop-shop for fashion and lifestyle needs of Indian consumer by
constantly adding more international and national brands to their catalogue.

On Supplier’s end, Jabong catered mostly to customers of premium and international

fashion brands that were established in India. The growth of top fashion e-retailers
outperformed brick-and-mortar fashion majors such as Zara, Levi Strauss, and Marks &
Spencer—brands that had been in business in India for a decade. Also Modern
Consumers gravitated to e-retail because they enjoyed the convenience of browsing
through thousands of big label options from the comfort of their homes or offices, as well
as the ability to easily return clothes that did not fit .For any international brand, it was
an assured platform with a commitment to maintain the brand integrity and image while
making it reachable to the mass consumers across the country.

But there was an inherent contradiction between these offerings. The most common
challenge for Jabong in India was that suppliers wanted brand salience, premium price,
and exclusivity, while customers wanted assortment and discounts on premium brands.
During Early years, exponential growth of e-retail in India had forced many premium
fashion brands to sell through this emerging channel. But discounts that Jabong had to
offer to their customers to generate high sales volumes resulted in brand dilution, which
compelled these same brands to avoid the online channel. The problem was more
critical when the brand commanded a premium and had significant offline presence.

How does (or how can) Jabong resolve that?

 Analyze the commercial implications of all four options for Jabong and suggest
the best course of action.

There was no real possibility of dropping Puma from the catalogue of Jabong, because one
of Jabong’s value propositions for customers was a wide range of brands. Puma and
Jabong were associated in the e-retail customer’s mind, and Puma was still an important
brand for customer acquisition at Jabong.
Data provided by the analytics team suggested that the top 10 per cent of customers were
likely to purchase from Jabong a total of 10 to 14 times, and average consumers purchased
only six to eight times. While, the top 10 per cent of customers acquired through Puma
sales purchased about six times a year.
At the same time, Puma’s brand guidelines would increase Puma’s aspiration value with
customers, which could help Jabong improve its profitability and customer profile.

a) Continuing with only the core articles from Puma’s product portfolio, which Jabong sold
before the new brand guidelines came into force will result into a much smaller range of
products which will affect the value preposition of Jabong. While competitors will have
exclusive and selected ranges of SMU’s available on their website.
Acquiring new customers was critical for Jabong. To meet this objective, the company was
already investing heavily in marketing, irrespective of sales outcome. Puma was still the
most searched keyword on Jabong’s website and the search for Puma’s products was an
important source of new customers. By choosing the above option, Jabong would lose new
customer acquisitions and give advantage to brands in competition in terms of new
customers interested in buying Puma articles.

b) Continue with the core articles and add select SMUs according to consumers’
choices, which could be determined by pre-tests in Jabong’s e-commerce platform.
A Product portfolio of core articles plus select SMUs, Jabong would face serious
competition from the other e-retailers selling the same SMUs. In competition to offer the
best price of the product it will lead to higher discounts which will be borne by Jabong. It will
result into aggressive pricing of SMUs and also cannibalize the sales of the core articles.
While the case says that the final unit sales would be unchanged, but the proportion of core
articles would drop to 20 to 30 per cent of what it was before application of new discounting
policy. The gross margin of the SMUs would be about 30 to 50 per cent of what Jabong
made from the core articles as of October 2014. The average selling price would be 80 per
cent of the October 2014 numbers but new customer acquisition would remain the same.
3) Ask Puma for an exclusive SMU range for Jabong in addition to the core articles.
However, Patnaik knew that Puma would limit the maximum discounts and require a
minimum order quantity for an exclusive range.
In my opinion, this is the option that should be opted by Jabong due to following
advantages:
Selected Exclusive SMUs will be a lucrative addition to the regular catalogue for PUMA.
The advantage here will come from case by case analysis of products selected for
exclusive product line. This selection will give an independence to Jabong to keep the MRP
VS Selling Price ratio in control, also according to their preferred popular price/discount
range. Considering the pioneer experience of Jabong in E-com, it will enable the company
to conclude close to accurate products for their consumer type which will be a task for
smaller competitors.
Also on consumer part, being the most strategic partner, Puma will give the best
commercial offer to Jabong initially. This will be an advantage would in initial few months till
the market stabilises with the new discounting policy. Since this decision has come in
middle of the year, Jabong will also will be able to save itself from missing the targets for
that annual year and consumers will also get advantage of aggressive discounts for the
exclusive SMU range.
One major demerit of this option is that it brings the chance of increase in the average
inventory of Puma products from 30 day’s sales to 60 days sales. This issue can be taken
in serious consideration during buying planning. While placing the orders for initials
purchase with the brand, Jabong can request for flexibility in units while delivering the same
value in amounts. For more accurate selections of the SMU’s, Jabong can go back and
draw some quality information from its catalogue of other high quality brands, designer
associations and the top trends pertaining to fashion, beauty, people, trends, travel, and
pop culture.

Also the case points out that the average selling price would be 75 per cent of current, but
new customer acquisition patterns will not change in this option too. Even the sale of core
articles dropping to 10 to 20 per cent, right selection of exclusive SMU’s will fill in the gap
for this drop.