mCommerce Formalizes India's Informal Economy

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How to harness the power of m-commerce for good: Our portfolio companies share 5 tips for formalizing informality.

The widespread impact of smartphones on India’s economy has opened up access to previously unreachable parts of the population. Entrepreneurs that use m-commerce to target their customers have been wildly successful. A prime example of this is Uber: its global limo and taxi aggregating services have added accessibility and efficiency to a previously informal sector. The formalization of jobs creates financial stability, raises labor standards and establishes accessibility to untapped parts of the market. We asked some of our entrepreneurs to share some insight on utilizing the power of m-commerce to impact and organize the base of the pyramid.

mGaadi: Organizing Rickshaws

Screen Shot 2014-11-24 at 11.27.50 AMWith the advent of public transportation and on-demand taxi services, the auto rickshaw sector is at the risk of losing its stronghold on the streets of India’s busy metros. The sector has been riddled with criticisms for years. The informality of passenger pick-ups, the unpredictability of financial transactions and the unprofessional attitudes of many drivers have consistently acted as deterrents for customers. Local governments have passed several mandates to improve the conditions of the sector. In many cities, rickshaw drivers are required to stop for all customers and charge a metered rate at all times of the day. Despite these rules, however, the lack of organization in the sector stagnates the need for behavioral changes.

Vishy Kuruganti, co-founder of mGaadi, believes that creating accessibility to the unorganized rickshaw sector on mobile platforms will help fix several of its problems. mGaadi is a booking service that allows users to hire rickshaws on demand through a smartphone app or a call center. “There is a very important difference between the informal sector and the formal,” Vishy explains. “Informal behavior will be that you said yes already, and that you want to go pick up this customer, but along the way, if you see another customer, you might just do it. The original customer is left on his own. Making taking rides formal gives it a bit of liability. Once a driver has given their word, with mGaadi, there’s a cancellation fee attached to it. If they cancel the ride, they’ll lose 50 rupees. Consumers are held accountable also. This combination is changing behaviors faster than anyone would expect.”

The effect that organization has on the rickshaw sector extends beyond basic efficiency for its customers. Kanthraj has worked as an auto rickshaw driver in Bangalore for over ten years. After signing up as a driver with mGaadi 7 months ago, he explains that he has seen a significant change in the consistency of his income. “Before mGaadi, I would waste a lot of time and fuel searching for another ride. There have been days when I haven’t gotten any rides. Now, mGaadi gives me a confirmation that I am booked for a ride. I can plan my day around my trips.” mGaadi has over 9000 rickshaw drivers signed up with their service in Bangalore. Most importantly, Kanthraj explains, mGaadi has provided him with a sense of dignity about his work. “I don’t think I’ve ever received much appreciation for my job. The feeling I get after someone from mGaadi forwards me a feedback email from one of my customers… it’s priceless.”

Jiffstore: Kirana Stores Online

Screen Shot 2014-11-24 at 11.28.07 AMJiffstore connects local “kirana” store owners to their customers through a smartphone app. The app allows customers to order groceries online and have them delivered directly to their homes. Kirana stores have served local populations for years, but, with the advantages that efficient franchised stores like Big Bazaar offer, kiranas have begun to lose customers. Shameel Abdulla, co-founder of Jiffstore, believes that the livelihoods of small business owners can be saved by introducing them to m-commerce at the right moment. “The area that we’re trying to venture into is highly unorganized and very complicated,” he explains. “Retail in India is expected set to reach INR 45 lakhs crore ($US 750 billion) by 2015. Ninety two percent of the retail market is unorganized – mostly in small shops. We see a fantastic opportunity for a cost-effective m-commerce solution to automate these shops, help them compete, and delight their customers.”

Although the concept of online grocery delivery is not a new idea, Shameel explains that the challenges that he has faced with Jiffstore are unique. Unlike franchised stores, kirana stores are independently developed and are as diverse as the customers that they serve. “One of the biggest roadblocks that we
regularly face is the diversity of kirana stores”, he says. “When we even think of implementing a very simple process, it may not work on the ground across all stores. We are trying to bring advanced technologies and marketing concepts to a very unorganized domain. I can’t think of three kirana stores that work the same. They each operate in entirely different ways and have immensely different ways of doing things. Some are somewhat organized, some are totally unorganized. That presents a huge challenge.”

The chaotic nature of the kirana sector is offset by the keen awareness that store-owners have of their competition. Manjunath and his family have owned Sri Manjunatha Stores in Ulsoor, Bangalore for over 30 years. He is no stranger to the venues that the Internet has opened up in recent years: After working for 8 years with AOL, Manjunath launched a website content development business. He explains that his subscription with Jiffstore has helped combat the surge of on-demand grocery deliveries provided by services like Big Bazaar. “For the first time in thirty years, we can use analytics to see what our local customers want,” he says. “We are learning to use them to prevent overstocking and fill our store with products that people here would want to see.” Another store owner, Sunil, explains that Jiffstore has reintroduced many old customers that he thought he had lost to online delivery services. “I don’t blame them because they left,” Sunil explains. “We weren’t providing what they needed. Jiffstore helps me cater to their demands in an efficient way.”

5 Tips for formalizing informality

M-commerce is an important addition to the diverse array of tools that entrepreneurs have in order to launch a startups that works with the unorganized sector. A few tips to consider:

  1. Unorganized sectors are untrodden paths. Don’t stick to your initial assumptions. Use on-ground experience to form an understanding of the nuances of the ecosystem.
  2. Focus on simplicity. The best solutions are the ones with the least space for mistakes.
  3. Experiment fast, fail faster. Your mantra must be to learn from your mistakes and pick yourself up as fast as possible. It’s vital to get your staff focused on quick turn innovation – deployment – assessment – revision – re-deployment.
  4. Build loyalty through delivering value. The organized sector does not have time to waste – and less money to spend – on things that don’t deliver them readily quantified and tangible value. Once you show that you can deliver value, your customers will stick with you. Prove your value efficiently and quickly.
  5. People and emotions matter more than ever. Since there is no formal organizational structure with which to reach the distributed decision makers of the unorganized sectors, marketing and sales must rely heavily on person-to-person interactions and word-of-mouth communication. This further highlights the need for simplicity in everything, and also the importance of making emotional appeals / connections between your customer and your product/service.

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