April 05, 2020
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All Lines Busy

Its direct selling revolution hasn't worked, so Reliance is making a rapid U-turn

All Lines Busy
Atul Loke
All Lines Busy
  • A leading Mumbai-based broker had promised 70,000 corporate connections to Reliance Infocomm. He was asked to collect the forms from the company's distribution centre. But when his representatives reached the spot, they were given only a handful. Eventually, the forms did arrive, but were a quarter of the amount promised. Even then, they had no stamp or number. Exasperated, the broker gave up on his endeavour.

  • Executives travelling within Gujarat, the Reliance bastion, carry a normal (GSM) cellphone along with Reliance's handset.The latter faces signal dropouts in certain areas, including Jamnagar (where the Reliance refinery is situated).

  • The latest in the long list of jokes that have been making the sms rounds is a take-off on the Reliance promise of "Kabhi mobile, kabhi computer". Apparently, some of the Korean-made handsets heat up fast when used, leading to the wisecrack "Kabhi mobile, kabhi toaster".

    For Mukesh Ambani, it was a midsummer night's dream. One that sought to morph the way we talk, do business, play and live. To bring the world mutthi mein, literally. But in less than four months, Reliance Infocomm's Rs 25,000-crore blueprint—the group's first mega retail initiative—is being reworked dramatically. The original plan, the company admits, hasn't worked so well.

    Last week, Reliance Infocomm, which has already invested Rs 9,000 crore and plans to pump in another Rs 1,500 crore this year, announced it was discontinuing its much-touted and revolutionary Dhirubhai Ambani Pioneer Scheme, which aimed to not only bring a mobile phone into every Indian home but also make an entrepreneur out of the common man through the allied Dhirubhai Ambani Entrepreneur (DAE) offer. "There are lots of things that don't work," chairman Mukesh Ambani told a financial daily with admirable honesty, "and at the end of the day you should have the humility to say so, or nobody will try anything new."

    In a fundamental shift, the company's direct-marketing juggernaut—50,000 DAEs all over the country pushing the mobile phone service—is now being replaced by a traditional model of over-the-counter sale. Says a company spokesperson: "Through customer feedback, we discovered the need for retail outlets where they can touch, feel and experience the handset. The critical need for a front-end was realised and we are now ready to provide consumers with a different retail experience."

    The key mistake Reliance may have made was appointing just about anyone as its marketing agent to sell its Pioneer scheme. As it panned out, consumers found it difficult to trust paanwallahs and neighbourhood grocers with their cash and post-dated cheques. "A smart executive in a company retail outlet has a better chance of convincing me than my newspaper vendor," says a Delhi-based middle-management officer who was approached with the scheme. "Imagine, the DAE was clueless about the fine print and handed me a subscription form—a third-generation photocopy—that was totally incomprehensible. All he could say was: Yeh bahut cheap hai (This is very cheap)." Credibility was critical here, since the customer would receive the handset a good 15-21 days after making upfront payments, so he wouldn't know what he was buying and had to believe the agent's wisdom.

    Moreover, the Pioneer scheme was hardly the simplest of deals to comprehend. The tariff structure was complex and there was simply too much fine print to figure out. For instance, most customers were led to believe that the handset was coming free (not really; he was paying for it through post-dated cheques). Many did not bother to check that the upfront promise of "all calls at 40 paise per minute" was restricted to calls made from one Reliance handset to another.For calls made to other cellular networks, the consumer had to shell out interconnection charges of 30 paise per minute (see graphic). In their rush to get subscribers, the DAEs glossed over these issues and ended up causing post-purchase dissonance among customers. Many DAEs themselves would perhaps not have understood all the aspects of the Pioneer scheme.

    All this has worked against the scheme in two ways. Many customers have been left unsatisfied since they believe the scheme failed to deliver on its promises. And the number of Pioneer subscriptions have also fallen far below expectations. Reliance had expected to net a million subscribers a month and it was confident of reaching a total of 2.5 million Pioneer connections. Against this, the company itself claims to have got 1 million in two-and-a-half months. Cynics, of course, claim the actual number of paid subscribers may be around five lakh.

    So, wisely, Reliance is rapidly reducing dependence on the DAEs. In the first phase, it's not renewing the contracts with nearly 30,000 DAEs and returning them their security deposit of Rs 10,000, plus Rs 100 per subscriber enrolled. Says a Reliance spokesperson: "We're giving DAEs who are not familiar with the new concept of network selling an option to move out." The DAEs will be replaced by 250 web stores and 100 phone stores all over the country. Subsequently, the company plans to have at least one company-owned retail outlet in each of the 673 Indian cities and towns.

    Of course, many DAEs are up in arms. Indeed, they have been agitated for some time now. Reliance sources involved with the mega-telecom project feel the current change in strategy was partially dictated by this large-scale unrest. Across the country, many DAEs had apparently started demanding their security deposits back. In Andhra Pradesh, for instance, many dealers recently demanded cancellation of their agencies. In Rajkot, over a hundred dealers surrendered their licences due to low customer turnout.

    "Why should we face trouble if Reliance fails to deliver on their promises?" says a Mumbai-based dealer. "From cheap tariffs to delivery of handsets, the customers are now waking up to the reality that it's not such a cheap service after all. Dealers aren't responsible for this lack of communication." Adds a Calcutta-based DAE: "Middle-class customers are cagey and I've had to face angry and irritated subscribers keen on giving up their connections just weeks after payment. They want to issue stop-payment orders on their post-dated cheques."

    Now that Reliance has announced its new marketing strategy, the DAEs are even angrier. "We are now facing a reality where we won't be the sole distributors (in specific areas). This will impact our estimated profits," says a south Delhi dealer. Since each DAE was earlier given a minimum target of 100 connections, some of them now run the risk of losing their deposits as Reliance's own distribution centres are opening up in their areas. "When we took up the DAE scheme, the company gave us verbal assurances that territorial integrity will be maintained. But in just three months, we have realised this has been a distribution failure," says the Mumbai dealer.

    But the DAEs weren't the only problem the Pioneer scheme faced. There was churning inside Reliance Infocomm too. The company had aggressively hired top marketing honchos—a veritable who's who of India Inc—to sell its products. While some of them, the company decided, had clearly failed to deliver, some others found they couldn't fit into Reliance's hierarchy-busting, high-pressure, go-getting corporate atmosphere. Yet others felt that the DAE-driven direct sales model had made them redundant. There has been an exodus of top marketing executives from the company, including some from its elite top management cadre.

    Says a headhunter, who claims that nearly every senior Reliance Infocomm executive has his curriculum vitae out in the market: "Infocomm has been an HR disaster. They hired too aggressively, perhaps even indiscriminately in some cases. So, they may have failed to assign proper work to many of their personnel and the DAE scheme made most of the channel managers redundant."

    The company, of course, denies this and claims it'll need its professional personnel when it launches the enterprise broadband initiative later this year. Using its national fibre-optic network spanning 60,000 km, the phase I of this project will connect about half-a-million office buildings. By early 2004, a host of applications will be offered to small and medium enterprises on this network. Therefore, says the Reliance spokesperson, "there is no question of people or their functions becoming redundant. The marketing and brand promotion for these activities will remain a continuous process".

    Reliance is now fully focused on speedily rolling out the "WebWorlds" and over-the-counter points to meet the May 1 deadline of its commercial launch. (Company sources say that nearly a thousand such stores would be up-and-running within a few months.) On May 1, the Pioneer scheme will be jettisoned. The new scheme will not have any lock-in period or an upfront payment mechanism. Under the old scheme, customers were locked in for a three-year period against upfront payments. The new scheme will offer a monthly billing system as offered by other telecom firms with an option to exit the plan at any time.

    With these marketing and distribution changes, Reliance Infocomm is confident that it can get back in high gear. Explains a company official: "We're committed to fulfil the promise we've made to our customers. They have placed their trust in Reliance's name and we will redeem their trust. By May 1, our network will be fully ready in the top 110 Indian towns."

    Meanwhile, Mukesh Ambani proudly points to the fact that Reliance is the first mobile phone service ever in the world to see three crore minutes of usage per day within eight weeks of launch. Not surprisingly, though, a top manager of a gsm cellular service company argues this is because the Reliance service is currently free; billing will start only from May 1.

    In the end, Reliance Infocomm may have just rushed it a bit too much, and been just a tad too aggressive with the targets that it set for itself, and the methods it used to achieve those stretch targets. The group has always set its limits higher than often thought humanly possible. In this case, when trying to entice millions of common human beings, something it has never tried before in the retail market, it's had a quick reality check. And being Reliance, it's now doing a U-turn at a speed quite disproportionate to its mammoth size.

    Arindam Mukherjee & Arijit Barman
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