Analytics in Business

About the authors

Giridhar Ramachandran
Giridhar (Giri) is currently a research scholar at the Department of Management Studies at IIT, Madras with research interests in social networks and CRM. In the past, Giri has worked extensively in the analytics industry in both captive units and analytics service providers and provided analytics solutions to clients in the CPG, retail and technology industries.

Pritha Choudhuri
Pritha is a co-founder of Analytics Quotient, a marketing analytics firm that counts leading marketing companies in the world among its clients. Pritha has previously worked in the analytics industry for several years, largely in the CPG space.
  • Amazon offers you a list of items you might like based on an analysis of your past purchases and those of customers like you. 
  • Your credit card company gives you a “credit score” to estimate your likelihood of making future card payments on time. 
  • Retailers, led by Tesco, are increasingly using knowledge about their customers to tailor products in each store to local needs.

However, this is already common knowledge. So is this all there is to analytics? What really is analytics? Are there different types? Which companies work in this area? And what skills does it take to be successful at it?

Powered by increased availability of data, much-improved computing, and huge gains from analytics seen by the early adopters, business analytics is fast moving from being a competitive differentiator to a necessary investment for any company relying on understanding its customers to stay in business. Businesses are looking to either create analytics capability within their organizations or are actively seeking analytics talent to partner with. Large banks, IT behemoths, retailers, are all strengthening their internal analytics groups. This has however not deterred the growth of analytics specialists – companies whose special skill is to look at data and find ways of making this data useful. Also, this has fuelled the analytics surge that we see today from service providers ranging from top-end management consulting companies to large and venerable market research firms. Each of these companies today has a large and growing analytics practice.

A combination of increased credibility of the outsourcing/ offshoring model and availability of large pool of relevant talent has put India prominently on the global analytics map. As mentioned earlier, the analytics providers in India are either captive or external vendors. Amongst external vendors, there are pureplay analytics providers, large BPO and IT companies interested in the analytics pie and management consulting and market research organizations extending into this space to provide a full service offering. The multitude of organizations providing analytics services today means that a wide range of services is bundled under the umbrella term “analytics”. From developing executive reports/ dashboards to predictive analytics to optimization, analytics has become a catch-all for anything to do with rows and columns of data.

                                                          Technique Sophistication

The analytics landscape

What are some of the typical problems that an analytics company might try to solve?

These might range from credit scoring to grouping consumers to generate better insights, to answering specific questions about consumers or products. As analytics practitioners, we often get asked simple business questions by our clients. 

Here are some examples –
  • What is the relative importance of shopper attributes in the shopper decision-making process? 
  • Is there a range of price my product should stay within to maintain market share? 
  • How does this change for each sku? 
  • How do competitor prices impact this? 
  • What are the right metrics to assess marketing performance? 
  • How can a firm realign marketing dollars to ensure optimum returns? 
  • What will the customer buy next and when? 
  • In which segments does the firm’s product have a right to win with customers? 
How are these questions answered?
While numerical skills and a knowledge of statistical tools is fundamental to answering these questions, an empathetic understanding of the client’s business and the context they operate in, coupled with a realistic assessment of the data available to answer these questions, really make the difference between effective analytics solutions and run-of-the-mill models.

However, is analytics then, a cure-all?

Can digging into data, and applying the insights gleaned from this process, translate straightaway into superior business results? Although we would love to say yes, the truth is that analytics, just like any other business tool, has its limitations. Common misconceptions about analytics, if not addressed, only lead to very ineffective analytic solutions.

Here is a list of some common misconceptions –

Analytics is the ‘cure-all’
Businesses are fraught with examples were analytics is blamed for poor results. A good analytics solution is only a diagnostic. It is not the remedy. The remedy lies in powerful execution. It is important for analytic solutions to be rooted in business impact. However, only a powerful execution can deliver the promised impact.

Analytics practitioners need not know the business
Data and Statistics are Industry agnostic. However, it takes a lot of domain expertise for the solutions to reflect business reality. If we do not get this right, the solutions will not be the powerful drivers of decision making that they should be.

One size fits all
There can be broad similarities across business problems and industries. However each problem has its own unique challenges and data always has a way to humble the practitioner. The authors have seen instances of the same analytical model getting used across diverse groups. And more often than not, the blame of poor results is attributed to the data! A black boxed solution has as much utility as a pharmacist dispensing medicine.

Analytics always uncovers hidden insights
It is very likely this is true. However more often than not, analytics validates what users might already know. Analytics helps connect the dots between events or attitudes and behaviour, thereby providing clarity. So, it is unfair to expect something new and hitherto unknown facts about businesses every time an analytic model is built.

Analytic models can be built (and read) by anyone
It is true that the advent of fantastic analytic software has removed the requirement of ‘experts’. However it has not removed the requirement of rigor in application. The authors have seen many instances where statistical techniques misused and analysis performed on data for which the data is not amenable to. All these have an impact of the reliability and robustness of results. Additionally, not having sufficient understanding of the method also results in incorrect interpretations. The power of analytics can be seen well only when the model building and interpretation are backed by sufficient relevant knowledge.

Notwithstanding all of these issues, the world of storytelling with numbers is a fascinating one and we have a multitude of examples to share of both interesting problems and incisive insights from our journey as practitioners. The analytics space is certainly growing rapidly, and will continue to evolve as our understanding on how to harness data and use it effectively increases. Whichever way this evolution progresses, the space is likely to continue to be at the cutting-edge of new business practices, and will therefore keep drawing top-end talent as we go forward.

Electric cars – Present or Future?

What is an Electric Car?
In its simplest form, an electric car is just like any other car in appearance but is propelled by an electric motor instead of an internal combustion engine. The source of energy in an electric car is a set of batteries unlike fossil fuels like petrol, diesel or gas in a traditional car.  However, if one was to get into details, an Electric Car is very unlike a traditional car in more ways than one.
This article explores the history of electric cars in brief, their obsolescence and come back, the current electric car market and future outlook.
Electric Cars – A brief history
Electric automobiles dominated the small automobile market that existed in the early 20th century. The key reason for this was that electric motor technology at that point in time was much more mature than any other propulsion method. Moreover, technical features of an electric motor – like the power-torque characteristic are very favorable for being used as a drive-train as it needs little modification. Electric cars had a significant share of automobiles in the first two decades of the 20th century. Some of the well known players then were Baker Electric, Columbia Electric and Detroit Electric.
However, with the advent of compact and safe internal combustion engines, Electric Cars lost their market share very quickly. This was further supported by the low prices of fossil fuels in the early 20th century. Vehicles powered by petrol & diesel were much more powerful than the electric vehicles of those times and were easy to refill and use over a long range. All these advantages made electric vehicles fade into oblivion very quickly.
Come-back of Electric Cars
While Electric Cars, fuelled by development of new battery technologies, saw continued interest in terms of academic research over the years, the 1990s saw a revival of commercial interest in the product. This was driven mainly by the rising oil prices and growing dependence of the industrialized countries on imported oil. Initiatives to reduce pollution and government incentives for such research served as additional reasons for commercial interest in electric cars. The past two decades have seen every major car manufacturer in the world devote considerable resources to build a commercially feasible electric car.
It is of interest to note that when electric cars made a comeback, the technology they started with (DC Motors powered by Lead Acid batteries) was almost same as those of the early electric vehicles. This is additional evidence that indicates a lack of commercial interest in Electric Vehicle technologies ever since it was replaced by IC engines.
Current status of the Electric Car market
Even today the market for pure electric cars, that is cars powered only by an electric motor and a set of batteries, is miniscule. The only player in the Indian market is Reva. Reva has sold electric cars in India since 2001. Apart from the traditional Lead Acid powered cars, Reva has also launched models based on newer technologies like Li-ion batteries and is consistently engaged in research & development with new prototypes showcased at major auto shows every year. Recently, Mahindra & Mahindra bought a 55.2% controlling stake in Reva, after which the company was renamed as Mahindra Reva Electric Vehicles Private Limited. General Motors India had also tied up with Reva in 2009. However, this tie-up did not last long and was called off in May 2010. Such alliances indicate a strong interest in the electric car market amongst the major automobile industry players in India and not just within niche companies.
Apart from Mahindra and GM, Tata Motors and Mitsubishi are other big names that have evinced interest in this market. Lesser known firms like Hero Electric and the clock maker Ajanta have also announced their plans to enter the domestic electric car market. In the international market too, all major car makers are engaged in sustained Research & Development efforts in electric car technologies. This is apparent from the presence of several prototypes of electric cars at all international auto shows. In the global market, Nissan Leaf, Mitsubishi iMiEV, BMW Mini E, Tesla Roadster are some of the electric vehicles that are commercially available or are in advanced stages of road testing. Hyundai has also ventured into this market with its ‘Blue On’, which is expected to be mass produced by 2012.
Future Outlook for Electric Cars
Year on year, auto makers have come to the realization that electric cars still continue to be ‘cars of the future’. Despite all the R&D that has been going into electric cars by the major auto makers of the world, they continue to face two major constraints – price and convenience of use.
Electric vehicles are priced significantly higher than traditional cars with similar features and performance. Electric cars using the old lead acid batteries have to carry a considerable load and hence compromise on space and performance. Cars with newer battery technologies like Li-ion are very costly. Moreover, in order to reduce weight the electric car body and other components also use more expensive materials. One solution to this problem is subsidies offered by governments for zero pollution vehicles. Another solution is that the batteries are not owned by the car owner but are rented. This reduces the one time burden on the car buyer. However, neither of these solutions has proved successful on a large scale.
The second issue is that of convenience. Electric vehicles have either a limited range (per charge of batteries) or a low maximum speed/power. Most electric cars are not meant to be versatile – that is capable of being used in cities as well as on highways. This becomes a bottleneck in the absence of supportive infrastructure (like charging stations) for electric cars.
In the near term, hybrid electric vehicles that can run on both gas and electricity provide a more pragmatic solution. Some automakers have tested reasonable commercial success with these vehicles. Prime examples are the Toyota Prius and Honda Civic Hybrid. A specific variety of hybrid vehicles, the plug-in hybrids have received more attention recently. Plug-in hybrid cars can run on both gas and batteries and also allow the batteries to be charged directly by plugging in.
It appears that pure electric cars would continue to be the next generation technology at least as long as the hybrid electric car market grows and matures. Till then, let’s hope that we continue to find new sources of fossil fuels.

Strategy Digest Vol 1 (Jan)

BMW and Affordability

An affordable BMW sounds like a classic oxymoron. Surprisingly, BMW has gone ahead with a well thought out strategic move to launch the entry level SUV – BMW X1 – in India. The X1’s price tag at INR 22 to INR 29 lakhs puts it in direct competition with the Honda CRVs and Toyota Fortuners of the extremely fast growing SUV segment in India.
The high end luxury car market in India is growing at an astonishing 74%. The playground offers attractive rewards with ever growing sales figures and BMW seems to have played the card just right. The BMW brand tag offers much more value to the Indian customer than a Toyota or a Honda and that is exactly where the BMW X1 scores over the competition.
However, if BMW really wants to conquer the Indian market even more convincingly it needs to capture the depth of the market that extends beyond the metros of India today. It needs to establish a robust after sales service network to make sure that models like X1 realize the sales potential they seem to possess. The X1 is a great launch and it’ll be interesting to see how Toyota, Honda and Hyundai face the new found competition from the grand daddy of automobiles.

The Mobile Store: Ready to evolve

With over 1200 stores and a 45% share of the organized cell phone retail market in India, The Mobile Store has been going great even with a strong pressure on margins. With a drastic shift in consumer preferences towards smart phones and falling price tags, The Mobile Store plans to change the phone shopping experience for its customers.
The Mobile Store plans to develop 300 of its stores across 50 cities into experience stores. These stores will allow users to get a feel of the phone, utilities, apps and new technology. It plans to do away with the cheap plastic dummy phones that we get to see presently. With trained Mobile Store personnel who will help the consumers choose apps and phones according to their needs, it plans to make it interactive for its consumers to make a wise choice while they buy a phone.
This plan undertaken by The Mobile Store is capital intensive and will surely put heavy pressure on the already squeezed margins in cell phone retail. Currently a retailer earns anywhere between 5-8% on the price. Moreover, the market is heavily price conscious and people make it point to get the cheapest deal even after they try out phones at outlets such as The Mobile Store. The implementation of the plan on a massive scale is also an issue with aggressive retailing tactics being employed by a growing number of competitors. 

Bypassing investment bankers in valuations

The selling of Honda’s stake in Hero Honda, Ranbaxy’s sale to Daiichi, Fortis-Wockhardt deal and the $3.7 bn Abbott-Piramal deal among many have a strikingly common story: There were no bankers involved in the valuations. It is a recent trend that has emerged lately when a lot of corporates strongly feel that “No Banker can ever know their business better that them”.
To add to it, more than 80 percent of the banker-madated deals in India are conducted completely by the promoters themselves and the bankers are left to pure mathematical execution. This trend seems to be fully justified and also enhances the confidentiality aspect of the deals. Information leaks have been a major cause of mammoth deals being brought down in a matter of days and bypassing the bankers seems to be a way of avoiding that. Other major examples include the TATA-JLR deal where the valuation was done by Tata’s close team and not bankers advising or executing the deal.
The bankers on the other hands are not losing out on the dealbook business but their profile of work is shifting more towards the financing, fund raising and implementation phases of the deals. It will be interesting none the less to follow the role of bankers in the deals to come in 2011.

Home Shop 18 – Developing a brand in a nascent market

Continuing with the theme of companies surviving in tough times and situations, we decided to have a look at Home Shop 18 – the way they managed to make a mark in a completely nascent market. Home Shop18, a venture of the Network18 Group, is an online & on-air retail marketing and distribution venture that was instrumental in launching India’s first 24 hour Home Shopping TV channel on April 9, 2008.

Situation at hand in 2008: Indians have always been the touchy-feely kind of buyers and shoppers. They want to compare things before purchasing, venture out to malls to spend their weekends enjoying the atmosphere while they shop and make all purchases an experience. With such a target segment, the TV shopping avenues were limited to small slots on prime channels in the day, or time slots in the night, when there was hardly any viewership. Even the products that featured were either health products or something related to spirituality, or rarely kitchen appliances. Hence, when Home Shop18 thought of entering this market with a 24 hours TV channel, there was no precedent that they could depend upon. 

Reason for entry: The penetration of television in a country like India is massive. Home Shop 18 calculated that there were about 100 million cable & satellite homes in India, and about 20 million direct-to-home television connections. But malls were present only in about 35 cities (a number which has grown since) and internet population was about 40 million. So, television was the best medium to penetrate into the smaller cities and towns, as they did not have easy access to brands, because of lack of malls and less number of internet connections.

Also, television gave the opportunity to create a captive audience, which seemed exciting to Home Shop 18. Television gave it synergies with the parent company in terms of programming and distribution. But a lot of effort was required. A call-centre would be required to interact with the customers, a merchandising team would be needed as well as a logistics system to ensure timely delivery of products to customers.

Pilot Project: Ferns & Petals, a famous flower retail chain, was the first partner for Home Shop 18. They were asked to help in delivery, and the other things were taken care of by Home Shop 18. A Ferns & Petals toll-free number was flashed on Network 18 channels, small call centre with 18 seats was rented. This pilot was successfully received by the audience, as there were 250 calls on Day 1 of the initiative, which increased to 500 after Week 1. But there were mess-ups at the call centre end, and that led to errant deliveries.

Call Centre Operations: The learning that Home Shop 18 took from this pilot was that a full-fledged self-run call centre would be required. Hence, Home Shop 18 CEO Sundeep Malhotra set up a call centre with 450 employees in Noida, which had the capacity to facilitate 20,000 calls per day. The ratio of successful converts per call was low (5%) in the beginning, but it has gradually increased to 30-35%, the average talk time has reduced from 14 to 7.5 minutes. This was possible by training given to employees, and the results have helped reduce costs. The biggest issue was trust, which is slowly increasing, thus raising the average price of purchases from Rs. 650 to Rs, 2650.

Logistics: Home Shop 18 has integrated its IT system with its vendors. As soon as an order is taken at its call centre, it is sent electronically to the vendor and a courier company. The courier company collects the product from the vendor, delivers it to customer and then collects the money and sends it to Home Shop 18.

Product Portfolio: The kind of reach that Home Shop 18 had to offer, of 3000 cities, was a good proposition to offer to brands to induce them to join the brand portfolio of Home Shop 18. But since there was no precedent, Home Shop 18 had a tough time convincing them. But gradually they have managed to create a strong portfolio of 480 brands and 23,000 products. In terms of sales, 45 per cent is still constituted by jewelry, appliances and kitchenware.

Value Proposition: The customers purchase products on Home Shop 18 due to two reasons- either they find the product unique or they find the deals better monetarily. Thus, a good collection has been a necessity right from the beginning. As for the deals, monetarily though they may not be priced cheaper, they are bundled in ways to make them attractive. Sometimes they are priced cheaper, since because no margins need to be given to retailers and wholesalers in between, it is possible to price them better.

Problems: Since the system is such that payment is made on delivery (to build trust with customers), about 23% of the goods are returned on delivery. This causes huge sunk expenditures. Also, currently it takes a week for the money to reach Home Shop 18, after which it sends the money to the vendor. To reduce this week-long cycle, several innovative methods like swipe machines etc. are being tried out.

Growth Opportunities: In its 2 years of operation, Home Shop 18 has built a very rich database of customer information, their preferences, shopping habits etc. It has recently started using this database to contact customers upfront to sell products of their choice. Currently about 7% of the sales of Home Shop 18 are by this sort of selling, this is expected to grow in the future, especially since with repeat customers, trust is already established which makes selling simpler. Also, a later aim is to add services as offerings, in addition to the current product portfolio.

When Home Shop 18 started as a 24-hour TV Shopping Channel, the industry mocked at them and so did the target segment. Before they ventured into this market, the things that sold via TV were magical necklaces and Lose-Weight belts. So everyone thought that Home Shop 18 was going to be a failure. In 2009-10, it made sales of Rs. 330 crore and 2.5 years later, Home Shop 18 is not just standing, but growing at a tremendous rate. It has succeeded without having a precedent whose model it could emulate, it has tried its own model, failed and learnt, re-worked to make the perfect model. That is what defines real strategy.
Reference: Business Standard