Dealing with competition
Competitive advantage is all about high quality performance. NYKAA has a distinguished competitive edge as compared to its rivals. It operates at an extremely low cost and commands a good premium price. In spite of delivering 17.1 million orders and operating 80 offline stores in 40 different cities, NYKAA has generated a profit of 61.9 crore in FY 2021, which makes NYKAA one of the very few e-commerce companies to actually generate profit.
How did NYKAA achieve profitability despite operating at such a large scale?
There are 3 modes of retail distribution for beauty & personal care (BPC) products in India:
1. The Unorganised Retail, which includes small general stores and drug stores.
2. The Organised Retail, which includes exclusive brand outlets and beauty salons.
3. The Online Retail Model.
The online beauty and personal care products market has seen a growth of around 500% in the last 4 years, from $ 206 million in FY 2017 to $ 1.064 billion in FY 2021.
Until now a large segment of Indian customers didn’t have access to the most reputed brands in the fashion and BPC products industry. This segment mostly comprised tier-2 and tier-3 audiences.
The BPC market also faced the problem of duplicate products. Even the reputed giant marketplaces of Amazon and Myntra failed to address these problems as a significant chunk of sellers sold duplicate make-up products which drastically affected the consumer’s online purchase experience. The lack of transparency and elaborative information also added to the e- commerce model of selling. Often consumers used to get expired products and, in some cases, the date of expiry was deliberately hidden by the seller. This also led to many customers facing skin related problems and allergies. These problems led to reliability problems and even giants like Amazon & Myntra were struggling with methods to deal with this issue.
What NYKAA did with its methodology paved the way for it to become a game changer. It not only increased accessibility through its online presence but also personally understood each one of these problems faced by the customers.
The first step of distinction was to opt for the Inventory Model of e-commerce. Using this method, the e-commerce companies generate way more profits than the Marketplace Model.
NYKAA bought products from companies like Lakme in bulk and sold them on its own website by storing them in its inventories. This way the company generates profits and successfully avoids the problem of duplicity.
The inventory model cannot be used by giants like Amazon and Flipkart because of the new FDI (Foreign Direct Investments) regulations of the Indian Government. Although the government allows 100% FDI in the Marketplace Model of e-commerce, which it defines as a tech platform that connects sellers and buyers. It has not allowed FDI in Inventory driven models of e-commerce, which are used by Amazon and Walmart in the United States of America. Cloudtail India Pvt Ltd. is already on the verge of closing down because of this. While these regulations might be a bane for others, it surely is a boon for NYKAA.
NYKAA will still have a competitive edge even if another Indian company uses the same Inventory Model of e-commerce because of its Omnichannel approach. While most e- commerce companies just sell their products, NYKAA believes in building deeper relationships with its customers by being an integral part of their overall shopping experience.
NYKAA has approached this in many ways starting from launching the “Beauty Book”, which is NYKAA’s in-house magazine. This booklet informs and educates its customers about their BPC products. From choosing a beauty product to walking the consumers through it and suggesting the best of products available. Similarly, NYKAA also has a foundation shade finder which asks you for your skin tone, the formulation and the coverage and provides you with the best recommendations. This type of personalized shopping experience was previously unheard of.
NYKAA has also built a very powerful community called the “NYKAA Network” with more than a million subscribers, where consumers can go and ask any questions related to beauty and personal care and get answers from people who previously bought the products or faced similar problems. There are about 40,000 weekly active users engaging with the brand community without any marketing push. From trending topics to FAQs, the network can emerge as one of the biggest fashion and BPC communities in the world in the next few years.
NYKAA has also done exceptionally well with content marketing. With around 1.21 million subscribers on their YouTube channel and a team of 3,055 influencers, trendsetters, fashion bloggers and make-up artists which include celebrities like Katrina Kaif and Janhvi Kapoor. There are more than 850 videos on fashion, beauty and make-up tips and tricks, BPC products and almost everything related to fashion and BPC starring almost 50+ celebrities, artists and influencers. All this content drives sales through engagement, awareness and endorsement.
The touch and feel necessity for the customers is fulfilled by the 80 stores in 40 different cities, eventually commanding more trust for the brand.
The future, the potential and the scope
This omnichannel approach gives a super competitive edge to NYKAA not only now but in the foreseeable future as well. The online BPC market has only 8% penetration as of 2020, which implies that millions of customers are first timers. This leads to the uncertainty of allergies and lack of knowledge. In this case, NYKAA’s guiding tools and content serves as a critical factor in winning the trust of first-time buyers. This also leads to increase in purchase value and higher customer retention. The average order value of a content consumer is 15% higher than a non-content consumer. It has also been observed that for customer retention, the gross merchandise value by existing NYKAA’s customers has increased from 51% in FY 2019 to 70% in FY 2021.
The community network of NYKAA is a huge mine of data for market research. When NYKAA decides to launch their own products, they can use this data to understand the scope of new product line-ups, focus on important trends and details and keep track of changing consumer behaviours and preferences which can be the biggest threats and the greatest opportunities in the BPC segment.
NYKAA has emerged as the largest e-commerce player in the BPC sector and is on its way to become the most powerful player in the segment. But as mentioned above, the online BPC segment has largely been unpenetrated, which means 92% of the customers are yet to buy their first BPC product online. The entry of another aggressive market leader in the future holds a threat to NYKAA’s future market position. Due to the size and saturation of the market, entry of companies like Purplle or a potential acquisition of Reliance Retail is inevitable. NYKAA may be the biggest fish in the market for now but the long-term future holds fierce competition and uncertainties.
Author Details:
Name: Lakhan Maheshwari
Batch: 2021-23
LinkedIn: https://www.linkedin.com/in/lakhanmaheshwari27
Noteworthy!
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