Amazon’s Udaan problem | MBA Learnings

Second-year student Rohan Rajiv is blogging once a week about important lessons he is learning at Kellogg. Read more of his posts here.

We recently looked at why Amazon’s first physical bookstore in Seattle made sense.

The central theme was that different products are suited to different kinds of retail channels. As you might imagine, shipping individual cartons of milk or toilet paper isn’t cost effective as the delivery costs likely outstrip the cost of the good.

Additionally, it is easy for stores to carry excess milk or toilet paper as these goods are cheap. However, when the good becomes niche and expensive (e.g. diamonds), delivery becomes cheaper, and it then makes a ton of sense to centralize warehouses as carrying inventory in store is a very expensive proposition.

So, as retailers get larger, it becomes essential to adopt a “hybrid” or “omni-channel” approach to supplying goods to customers. It is the only way to stay competitive.

When we then consider an emerging market like India, retailers like Amazon are faced with additional problems.

For example, Indian consumers don’t trust the online channel as much and regularly opt for “cash-on-delivery.” This has massive costs associated with it as it means all delivery personnel need to be equipped with and trained to deal with cash. Additionally, it is not very efficient.

So a recent class discussion centered on what Amazon’s approach in India might look like. Our Professor’s thesis was that the best way forward for Amazon would be to partner with the hundreds of thousands of local retailers as it would solve three important problems:

1. Tailoring.

Low value products could be sold from the retailer and save Amazon delivery costs. In return, retailers could place orders for the more expensive, niche goods and better serve their customers.The best part is that this wouldn’t require customers to change their behavior – opening up Amazon retail stores, on the other hand, would require customers to stop visiting their local retailers.

2. Cash-on-delivery.

Amazon delivery personnel need not worry about cash-on-delivery. They could enable cash-on-delivery for in-store pick up only.

3. Delivery.

Finally, delivery personnel need not worry about not being able to deliver orders. If there are any issues, they could then deliver the goods at a retail store nearby.

And, right on cue, Time had an article about Amazon’s “Udaan” program — unveiling a large pilot of a retailer partnership program. Fascinating.

(HT: Prof Chopra @ Kellogg)

Rohan Rajiv is a second-year student in Kellogg’s Full-Time Two-Year Program. Prior to Kellogg he worked at a-connect serving clients on consulting projects across 14 countries in Europe, Asia, Australia and South America. He blogs a learning every day, including his MBA Learnings series, on www.ALearningaDay.com.