At the offices of Xiaomi and other smartphone companies, Kalyan, Ajay and Ayyappan were pounded by questions and doubts.
‘Are you in for the long term?’
‘Can you guarantee Flipkart won’t lose focus again?’
‘Amazon is going to outspend you. How do you plan to take them on?’ ‘There’s a lot of churn. You guys keep changing leaders.’ And on it went.8
Kalyan was honest. He admitted that Flipkart had lost its way but pleaded with the smartphone chiefs to trust him. ‘Give me a chance. We will do whatever it takes to make you successful.’
Flipkart had also devised a new smartphone strategy that Ajay and Ayyappan presented in detail at these meetings. It was fuelled by a novel insight, which caught the attention of the phone-makers. Customer shopping patterns on Flipkart seemed to indicate that people who already had smartphones were hunting for better phones. Worryingly, Flipkart didn’t register searches from new users. For some reason, people who owned feature phones didn’t seem to want to upgrade to smartphones for the time being. Essentially, the demand would come from people replacing their old smartphones, not from people buying smartphones for the first time. This was surprising – smartphone sales had been fuelled by the multitudes who were swapping their simple handsets. With the entry of cheap Chinese smartphones, it had been assumed that this shift would continue for many years to come.
Looking at its customer shopping data and the general slowdown in online retail, Flipkart had come to the conclusion that industry sales volumes would hardly grow this year, contrary to the general consensus. This new market reality necessitated a change in strategy by both Flipkart and smartphone-makers. Flipkart divided the market into layers based on prices. In every niche, the company set out to accumulate a small but deep assortment of powerful Android phones. It had also decided to buy sizeable quantities of iPhones, the most premium brand, to attract the small number of customers who would want to indulge themselves during Diwali. But it would avoid buying too many phone models: depth over width. This strategy was risky – Amazon, with its goal of offering the widest range of products in any category including phones, would have everything for everyone. If Flipkart had misread the smartphone market, it would spell disaster.
The company also prepared what it called the ‘affordability construct’ for customers. It was to nudge people into making purchases by offering to buy their old phones at decent prices. Customers were given the option to purchase phones on interest-free credit. The company had primed its supply chain for fast deliveries of phones at the expense of other products.
On the whole, the comprehensive package and the depth of Flipkart’s research impressed phone brands. Finally, the company outbid Amazon and promised sales volumes that far exceeded what the brands had expected. This sealed it.
The first to return to Flipkart was Xiaomi, in late July, less than two months after Kalyan’s comeback. Soon after Xiaomi, Motorola and Lenovo followed suit. Kalyan’s presence helped in a significant way to reassure these brands about Flipkart. His courtship of brand executives – CEOs don’t usually travel to attend meetings with brand partners – flattered them and reaffirmed Flipkart’s seriousness in competing in the category again.
As with the smartphone operation, Kalyan imposed similar rigour in other categories. He centralized power, but his ruthlessness which was jarring to those outside his team, also brought decisiveness and agility. In August 2016, his efforts started yielding improvement in the sales numbers, which finally inched up after many months of decline.
Simultaneously, Flipkart’s customer service scores were advancing. Binny’s imposition of structure and processes at the company had brought much-needed discipline, especially in the supply chain function. Under the leadership of Binny’s chosen lieutenant, Saikiran Krishnamurthy, the logistics service was recovering the speed and consistency in order deliveries that had once made Flipkart the favoured shopping destination of online shoppers.
Slowly, the company was regaining its mojo.
Flipkart made another big move to preserve its leadership position. In late July 2016, the company swooped in to buy Jabong, the struggling fashion e-commerce firm, for $70 million. For months, Snapdeal had been locked in talks to buy Jabong. The discussions had reached the final phase, with the two companies converging on an agreeable price. This is when the Jabong investors reached out to the Myntra CEO Ananth Narayanan, encouraging him to make an offer. Ananth took the deal to the Bansals and Lee Fixel. After moving from McKinsey, Ananth had brought about a rapid improvement at Myntra, increasing its margins and accelerating sales growth. He was held in high regard by Flipkart’s board. They gave him the nod to make an offer. While Jabong’s business had collapsed because of corporate governance problems, its brand still resonated with fashion shoppers. Besides, it was too risky to let Jabong be bought by a rival. Fashion was the one category in which Flipkart’s dominance was unchallenged; it would be foolish to enter into an expensive fight over this in case Jabong was snapped up by Amazon or Snapdeal. In
