Naga Chokkanathan

Why Not? — Low Value Transactions

Posted on: August 20, 2010

A few decades ago, IBM Corporation had a nickname ‘Snow White’. Can you guess why?

When IBM’s Mainframe computers were ruling the world, all other computer manufacturers couldn’t do anything to fight with this giant. They had to wait (and fight) for the leftovers. Media nicknamed IBM as Snow White and its seven competitors (Burroughs, UNIVAC, NCR, Control Data Corporation, Honeywell, General Electric & RCA) as seven dwarfs.

This domination continued even after the arrival of PCs. IBM’s personal computers introduced a quarter century ago was leading the market by a huge margin and others had to fight really hard to get any business. Their products were called “IBM PC Clones”.

In the last couple of decades, Big Brands still rule the world. But small companies are not far behind. In fact this long tail (collection of small and medium size companies, startups etc.,) is much more powerful than any single Corporation today.

Whether you are a product company or a service company or an individual freelancer, competition is there from all quarters. No one wants to miss even a small piece of business these days. In such a hostile environment what should a newcomer / small company do to get the confidence of prospects and prove its worth?

Yesterday I was watching an interview of Sachin Bansal, Co-Founder & CEO of the famous Indian online bookstore http://www.flipkart.com/ (CNBC / Young Turks Transformers). The interviewer wanted to know why Flipkart decided to concentrate on selling Books. Why not Mobile Phones or Cameras or other high margin goods?

Sachin Bansal’s answer was very simple and straightforward: ‘Books have a low transaction size. You can buy a book for a cost as low as 100 Rupees. So it is very easy for the customer to trust you with that first transaction. On the other hand if I sell a costly item, customer may not trust me (a new, unknown company) with a five thousand rupees order.’

(Image Courtesy: http://www.businessworld.in/)

Of course, Flipkart had so many other challenges. But earning the trust of a customer with a low value transaction was the important turning point. Once the customer places an order worth Rs 100 or so, all you need to do is bowl them over with your product quality / speed of delivery / quality of service / after sales service etc., They may not make too much of a profit in this first order, but it can be considered as in investment to get this customer’s confidence and do more business with them in future.

This rule applies for any business. Only tough part is identifying what is that low value transaction your prospects would be interested in!

(028)

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N. Chokkan …

20 08 2010

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