Friends do you know that 98% of start ups in India are loss making? They haven't made profit yet. And Nykaa comes in the 2% category, the valuation of Nykaa as on date is Rs. 24000 Crore. This was started by Mrs. Falguni Nayar in 2012. Now buddy, there are so many brands since many years in fashion and beauty but they couldn't achieve such a great valuation. How did Nykaa managed this?
If we talk about 2020 then Nykaa's revenue was Rs. 1860 Crore out of which Rs. 94 Crore is net profit. Now the question is how did Nykaa do all this? So welcome back to our website case-bio.blogspot.com. To understand this let us see some strategies implemented by Nykaa in their business.
#1 Nykaa Opex Loop : Nykaa India
First strategy is Opex loop. Well, what is this? Opex means Operating Expenditure and loop means make it rotate. Understand this in the Beauty business, Fashion retail business margin is quite high but profitability is not high. What does this mean? Margin means how much you are earning per sale. How much is your margin?
So in beauty products the margin is high but the profitability is low because of high operating expenditure. Means if you are running a shop then you have to bear many expenses such as expenses of your employees, electricity, racks & shelves expenses, the interior maintenance expenses rent and so many expenses are there. And Nykaa has reduced all these expenses by entering in e-commerce platform.
Nykaa has formed its own loop. What is that new loop? High Margin, High Profits, Low Opex. This is a big difference in a shop and a e-commerce store. The operating expenditure of a shop are very high and when you shift to e-commerce then your operating expenditure are comparative very low. And that is why when Nykaa started off they started with e-commerce.
They did not have any physical store initially. Nykaa did an amazing thing with e-commerce which is called Data Leverage. When they shifted to e-commerce then they had customer data. And with this data they leveraged. Well, how did they do it? When you have the customer data then you know their buying behavior quite comfortably.
You are aware about the products that customer wants to buy and the product that he does not want to buy, which product he is more interested in and which product is in his cart, which product does he shares with his friend, all these details are available when you shift to e-commerce, when you become digital and Nykaa used all this data.
With this the COCA - Cost of Customer Acquisition for Nykaa reduced from Rs. 1000 to Rs. 200. Earlier Nykaa used to acquire single customer for Rs. 1000 whereas today it is just Rs. 200. Why is it so? Because Nykaa has captured a huge space in e-commerce business. This space is known as Digital Real Estate and with this Nykaa has so much of data today that they know everything about the customers. And they have taken advantage of this in many ways which I will tell you later.
#2 Nykaa PM Approach : Nykaa case study
Problem solving
Their next strategy is PM approach, we are not talking about Modiji, see P means Problem, what is the problem in market? They first identified the high demand which is increasing day by day but the problem in the market is duplicacy which is very high in beauty products that people are fed up with it. And it is also a big risk factor. Why?
Because see, you apply beauty products on your face and on your body, so what happens is when you apply and if any content is faulty then it can damage your skin permanently. So the long term customer value is very important here. Once the faulty product is delivered then the customer will leave forever.
To take care of all these things they first of all collaborated with brands like Mak, Lakme etc. They told these brands that we will sell your products on our platform. Now they also had to maintain the quality that no poor quality product is delivered. To maintain that they followed Inventory Model.
They asked brands to send the stock, we will store it in our inventory and that will be delivered. What happens due to this is quality is controlled. Because now Nykaa knows that the products they have is directly from brands and not from third party seller. So Nykaa has assurance that no poor quality product is delivered to their customers. And even if it does then brand is responsible for it and not Nykaa.
Marketing
Now the second factor on which they focused is Marketing, M for Marketing. They saw that it is very important to bring customer but to retain them is even more important. So they used a 360 degree approach. First of all they did content marketing.
For content marketing they wrote blogs and then they shifted to influencer marketing. They collaborated with many influencers on YouTube. They also had their own YouTube channel where they provide beauty tips to people and also inform about how to use new products. So that they can maintain long term relationship with customers and also people who don't know how the products are they learn to use the products.
Apart from this they have done good marketing on their social media handles. They also have given sponsorship to many celebrities. Apart from that they provide discounts. If you visit the Nykaa website then you will come to know that they annually run thousands of discount offers. And daily you will get some offer or the other on Nykaa.
#3 Nykaa Netter fishing : Nykaa buisnes
The next strategy is Netted fishing. Understand this, if you are fishing with fishing rod then you can catch 5-10 fishes at the most but if you fish with a fishing net then how many fishes can you catch? Many of them, and same is done by Nykaa. Nykaa have understood that if I run only e-commerce store then I will not grow big, I will have to do so many other things. Today Nykaa runs its e-commerce store and they also have more than 70 offline stores but are these their nets? no! Then what are there actual nets?
Nykaa luxe
Their first net is Nykaa Luxe. Nykaa Luxe deals in high end brands. There is expensive brand called Huda beauty they don't have outlet in India. So all their products are available at Nykaa Luxe. Through Nykaa Luxe they acquire premium customers who prefer expensive brands.
Nykaa Ontrend
Their second net is Nykaa Ontrend where you will find all the trending products in the beauty and fashion. Means the trending customers those who say that they want trending products, not the outdated one, show something new, those customers are acquired from there.
Nykaa Fashion
Their third net is Nykaa fashion. They knew that beauty alone won't work, fashion industry also have huge scope and we can expand here as well. So they started Nykaa Fashion. All those women who are interested in fashion can come to Nykaa fashion and can buy clothing
Nykaa Naked
There fourth net is Nykaa Naked. On Nykaa naked all the women buy lingerie. Brother we are done with external fashion but internal fashion is also necessary.
Nykaa Man
Along with this they didn't just focus on women. Their fifth net is Nykaa Man where all the men grooming products are available.
Nykaa Naturals
Now along with this they had identified one thing in fashion and beauty industry which was that people now need chemical free products. So they opened Nykaa naturals. Nykaa Naturals is their sixth net.
With their sixth net they were able to capture all those customers who like to use chemical free products, who need beauty products but not chemicals. With this netted fishing technique Nykaa has acquired different varieties of customers. And you can do all these things in your business. You will just have to search for the right nets.
#4 Nykaa Omni Channel : Nykaa Biography
Their next strategy is Omni Channel. Now how does this work? Omni channel means you surround customers from all the sides so that he does not escape from you and you can in a way easily acquire him. To do this they first of all made strong presence in online platform & then online. But they faced a problem that they could not integrate these two platforms together.
So they invested in ERP system to integrate them. With ERP they were able to do real time management. They knew what was the cost of inventory, what is the expense on salaries, how much is the cost of raw material and they were able to track the performance of offline stores. Which store needs to be closed and where to open new one? How is the behavior of the customers? How many are repeated customers and how many are leaving? What are the different things in business?
All these things they were able to track with ERP. And thus they were easily able to execute the Omni Channel. And this Omni Channel was used by them to make the start up profitable. Well, how? Because with the use of Omni Channel they knew that which products do customer needs and at what price. Which customer like to buy offline? Which products are sold more in offline and in online mode? And then they started their Nykaa range which is very high profit generating. Why? and How? See for their own range they didn't have to operate on commission.
The margin is their net profit after deducting all the expenses. Apart from this, their own range can be sold at low price easily and in bulk quantity. How? Because they have data. Same thing is done by Amazon, which operated for many years in India and they observed which are hot selling products & then all those products were produced by Amazon itself which we know as Amazon basics. Similar thing was done by Nykaa they used the data and launched their own products to generate the profit.
#5 Nykaa Speed and Actions Strategy : Nykaa Fashion
Their next strategy is Tight Speed and Tight Actions. Actions should be tight and speed should be fast. How?
Nykaa Speed
See most of the start ups fail because they scale up very rapidly in the initial phase. Nothing wrong with scaling up but you have to consider sustainability at the same time. Many start ups don't do this and Nykaa did this first. They focused on their e-commerce business initially to make it sustainable. As soon as it became sustainable, they knew that we have data as well as customers after which they started expansion.
Firstly they built the base of e-commerce then they leveraged the data that was available with them, used that data to launch their new products. Then they did horizontal expansion. The six nets that I have told you, are all part of horizontal expansion. Nykaa Luxe, Nykaa Ontrend, Nykaa Fashion, Nykaa Naked they kept on opening them. They built the base before doing this which is very much necessary.
Action Strategy
Now let us understand speed of action, it is very important because the start up space is very competitive. If you take time to act then your competitors will beat you. Falguni Nayar was an investment banker earlier so she had experience of how start up works? which are the important factors?
So she did it carefully, whenever she had an opportunity, she took action with speed but maintained the sustainability. Not such actions which harms the sustainability. What happens because of that is the fundamentals of your business are weakened. And if it happens then Nykaa would never had made profits. They carefully considered all these factors.
When Covid-19 was there then Nykaa business was affected badly. All their offline stores were shut down. Then they decided to start Hyper Local Delivery. They said whatever online business we are doing, we will connect it with retail outlets. What will happen because of that? Those people who need products, they will get it with home delivery from nearby Nykaa retail outlet. The product will be delivered fast and the retail stores will have their business as well. And Nykaa will face no problems either. So that's how they made they made their buisness model. I hope you like it and if you like it please comment
