Inkfruit.

com Business Model

About InKfruit

INKFRUIT.COM has developed a co-creation model similar to Threadless.com, but within the specific dynamics of the Indian market with its rising middle class looking for affordable brands and design. An inspiring story by Yash Saxena about how Inkfruit set up their business model in India, overcoming essential obstacles, and successfully positioning themselves between big brands and low-cost competitors.

Founder Corner

INKFRUIT Today

Designer community: 10,000 T-shirts sold per month: 15000-20000 T-Shirt Avg. price: 350 Operating geography: India Head Office: Goregaon, Mumbai Sales channel: Website, affiliate program. Marketing channel: Orkut, twitter, facebook, blogs Retail partner: 250 Competitors: Threadless, Myntra, Dilsebol,Pringoo,Zoomin etc.

INDIAN Apparel Industry

India's $58 bn domestic market would also clock a CAGR of 9% to be $141 bn by 2021. Although dominated by menwear, India's domestic market would see growing share of womenswear and kidswear over the decade. Men's share in the basket would drop to 40% from 43%, the report indicates. The apparel/clothing market in India runs into billions of dollar, nearly 30 billion annually. The big brands segment that accounts for just 5% share of this overall pie, attracts the most attention. Its share is likely to grow several times as more Indians move into urban areas and the middle class in India aspires for more. (Aspirations- as I had written in my last column and quite obviously so- is a defining force in Indian commerce). The premium apparel segment corners good margins of around 40%.

With Indian's increasingly taking to buying new homes and decking them up, the share of home textiles in the basket would grow by 8% to become $9 bn by 2021. The technical textiles market would however, clock a faster growth at 10% to become $34 bn during the period. With growth slowing down in major consumer markets in the West, the dynamics of the global textile and apparel trade that would be $1 trillion by 2020 is likely to change dramatically, notes Technopark. BRIC economies and other South-East Asian manufacturing destinations would be the major growth drivers for the sector during the period. Indian apparel sales are expected to reach an estimated $25 billion this year, having grown in excess of 10 percent over the past 5 years1a growth rate faster than that of the overall India retail marketand the trajectory is expected to continue [Exhibit 1]. In India, apparel is the second largest retail category (behind food and groceries), representing approximately 10 percent of the total market. This growth is being driven by a number of factors:

Increase in disposable income. By 2005, 21 million of Indias 210 million households already earned more than $4,000 a year, qualifying them for membership in what we call the consuming class. Based on McKinsey research, by 2015 the number of consuming class households will likely triple to 64 million. New occasions. As the lifestyles of Indias prospering urban consumers have evolved, their clothing needs have broadened, reflecting more varied usage occasions. For men, clothing choices once came primarily in three basic categories: home-wear, work clothes, and special occasionwear. Now, with more socializing opportunities, men are buying more sophisticated combinations of outfits: party wear, sports wear, clothes for hanging out at the mall. Growth in the womens segment.Historically, the mens apparel market in India has been significantly larger than the womens apparel market. With only 20 percent of Indias urban women in the workforce, womens wardrobes have traditionally been limited to home wear and items for special occasions. Fashion increasingly a form of self-expression. Increasingly, Indian consumers are embracing the idea of fashion for its own sake, as a means of self-expression, and not merely as a functional purchase. Television, movies, advertising and the Internet bombard todays Indian consumer with new ideas about style, even as American-style shopping malls lure them away from traditional marketplaces.

Over the next five years, we expect this growth to continue and the size of the market to nearly double. The increase will come partly from continued gains in disposable income, but its not just that Indians have more to spend. As they prosper, Indian consumers will naturally continue to spend more of what they earn on what they wear. Our experience suggests consumers worldwide typically spend an average of 5-6 percent of total income on apparel, but the figure is often significantly higher in emerging markets. Consumers in Chinas larger cities, for example, spend 10 percent of their income on clothing, nearly double what their counterparts in Indian cities spend.3 That higher propensity to spend on clothes has helped to make Chinas apparel market 4-6 times larger than Indias. Brazils consumers similarly spend more per capita on clothing than either Indias or Chinas.

1. According to the India Ministry of Textile, apparel sales for 2008 were $ 20 billion; Datamonitor. 2. How Half the World Shops (McKinsey propriety market research). 3. Chinese figures are from 2006 and from the National Bureau of Statistics, Peoples Republic of China. In India, per capita GDP spending on apparel increased to 5.8 percent in 2006 from 4.9 percent in 2003. However that number is higher in the major cities. 4. Indias Foreign Direct Investment rules essentially only allow FDI in wholesale, or cash-and-carry, enterprises. Foreign retailers can, however, enter retail through franchise agreements with domestic players, and can own up to approximately half in single-brand retail. 5. Two major Indian apparel brands go organic, The Hindu, April 14, 2010. 6. Economic Times, April 15, 2010, Benetton India revenue likely to touch $250 m in 4 years.

Inkfruit Business Model

One emerging apparel and accessory firm in India Inkfruit has taken up the route of leveraging great designs in order to break into higher margins. Overtime good performance on design converts into brand. There are a number of t-shirt retailers in India who are experimenting with great contemporary designs to attract the young crowds. Inkfruit has gone ahead and adopted a co-creation model and democratized its design process. Theyre crowdsourcing their design process, similar to the likes ofThreadless.

Relationship Inkfruit Yes

Data yes

Transaction yes

From the beginning their business model has been focused on getting their designs right. In this process, Infkfruits business model has gradually evolved into a more intensive co-creation model. Inkfruit currently holds always on design contests for the community. Designers and freelancers can submit their designs which are open for general voting. Designs that get the most votes in 90 days, are selected for production and retail sales. The designers get prize money and recognition as creators of the designs, and perhaps the satisfaction of watching their design being worn by people. Inkfruit initially began by holding design contest in design schools and college campuses. However they quickly realised that such captive design contests restricted participation. A lot of good designers couldnt participate in such a format. Also the format was not an always on contest i.e. it was held at different places intermittently and neither it was easily scalable. Therefore Inkfruit moved towards an online around-the-clock contest format. This ensured that designers from far flung areas could also participate and bring in more designs. A centralized contest brings in more efficiency too. More participation in the voting process by a larger online community also helps Inkfruit in getting their designs right. Holding online contests costs less than holding contests offline and the whole co-creation process is also integrated with the online shopping platform. But beyond the online platform, it would be nave to assume that physical back end the supply chainscould be any less efficient than the digital front end in order to sustain. Inkfruits brick and mortar supply chain- the suppliers & retailers plays an equally important role. Inkfruit had particular difficulties in sorting out their deals with the suppliers and retailers in the initial days due to their low volumes.

Cost strategy
Fixed cost: Dye used for printing Tshirt. At lower volume fixed cost are not recoverable, difficult for supplier to supply low volume of Tshirts. Total sales-Fixed cost-Variable cost = Profit Total sales= N x P ( N= no of unit sold, P= price) Variable cost= N x p ( p= variable cost) Fixed cost is fixed for any no. of T-shirt required from supplier; total sales and variable cost depend on the volume sold, for lower no of T-shirt sold fixed cost wont be recovered.

Inkfruit paid a fixed price at lower volume to overcome fixed and variable cost. To win the trust of the supplier and building a long term relationship, inkfruit paid a fixed amount if Tees are sold below breakeven point for supplier to overcome the losses, higly appreciated by the supplier and followed conventional method as sales volume increases

Retailers were doubtful: How long Inkfruit would continue. Provided the retailers minimum sales guarantee deal. Compensate the retailers for any sales less than the agreed minimum target. Winning trust of retailers with the scheme.

As Kashyap Dalal, founder-CEO of Inkfruit explained to me that during their interactions with the t-shirt printers, they realize that there is always a fixed cost and a variable cost of printing any design. The fixed cost consists of making the dyes used in printing the t-shirts. When the volumes are low, the fixed cost is a major component and therefore it is not profitable for suppliers to supply low volumes of t-shirts.

In order to solve this situation, Inkfruit cut a deal wherein Inkfruit paid a fixed price, to cover the fixed costs of the manufacture, and a variable price. Overtime, with their volumes improving, they switched to the conventional system.

There were similar problems at the retailers end. Retailers were doubtful about how long Inkfruit would continue and if Inkfruit would be able to bring in sufficient sales. Inkfruit again provided the retailers a minimum sales guarantee deal wherein Inkfruit will compensate the retailers for any sales less than the agreed minimum target. However Inkfruit received warm response from customers and they never really had to compensate any retailer. Even in cases where they did not achieve targeted sales initially, the retailers were happy to continue their relationship and did not ask for compensation. The key as Navneet Rai, Cofounder Inkfruit explained lies in building trust with the retailers. In fact much more than the minimum sales guarantee schemes it was the genuine commitment that Inkfruit brought to its relationship with suppliers that kept the Inkfruits boat steady with the retailers right through its journey. Since those early days with just two employees, today Inkfruit has grown into a team of 75 with revenues of two million dollars and growing.

Inkfruit co-creation and crowd sourcing:

Value co-creation is a joint process where both the customers and the firm have to weigh in their risk-benefit and come to a mutual understanding to go forward.
Co-creation is a form of marketing strategy or business strategy that emphasizes the generation and ongoing realization of mutual firm-customer value. It views markets as forums for firms and active customers to share, combine and renew each other's resources and capabilities to create value through new forms of interaction, service and learning mechanisms. It differs from the traditional active firm passive consumer market construct of the past. Co-created value arises in the form of personalized, unique experiences for the customer (value-in-use) and ongoing revenue, learning and enhanced market performance drivers for the firm (loyalty,

relationships, customer word of mouth). Value is co-created with customers if and when a customer is able to personalize his or her experience using a firm's product-service proposition in the lifetime of its use to a level that is best suited to get his or her job(s) or tasks done and which allows the firm to derive greater value from its product-service investment in the form of new knowledge, higher revenues/profitability and/or superior brand value/loyalty

Inkfruit.com

Customer

Blending the thought process of consumers and there feedback through choosing the design and voting them online Creating a theme based design display on the basis of customer need.

Crowdsourcing is a process that involves outsourcing tasks to a distributed group of people With explicit crowdsourcing, users can evaluate particular items like books or WebPages, or share by posting products or items. Users can also build artifacts by providing information and editing other people's work. ( Inkfruit follows) Implicit crowdsourcing can take two forms: standalone and piggyback. Standalone allows people to solve problems as a side effect of the task they are actually doing, whereas piggyback takes users' information from a third-party.

Marketing Strategy
The model work like this:

Social Media To keep customer happy ( word of Mouth publicity). our artists are our ambassadors.

The aspiring designers can send their designs to Infruit and these designs will be put to vote inside the Inkfruit community. The design which gets maximum votes is eligible for a honorarium. These designs are screen printed on T shirts which will be put on sale in the website. The company claims that the T-shirts are made of high quality and the screen printing delivers to the designs. The T shirts is available for Rs 349 (Plus delivery charges) which is a reasonable price. India does not have a pure T-shirt brand. Although most of the readymade brands have T shirts which we feel that there is a scope for a pure-play T shirt brand. Because there is a wide acceptance of this category among all demographic profiles in the Indian market. Ladies, Kids, Gents, youth; all like wearing T-shirts. In this perspective, Inkfruit has done the right move in tapping this market. Here the differentiation is with design. The company smartly is trying to tap the design talents in the country in a very economical way. We know that reputed designers are costly while there is a huge design talent in India who are looking for platforms to express their skills. Inkfruit offers them the much desired platform.

But all are not rosy for the business model of Inkfruit. The concept of e-retailing is in the nascent stage. The penetration of Internet among the consumers is a vital variable in the success of any e-retailing venture. There are security fears among consumers in using internet for shopping . To tide over this fear, Inkfruit has introduced Cash-on- Delivery at an additional cost of Rs 30. With regard to the branding, Inkfruit has to have more clarity. Is it going to be a corporate brand or the T-shirt brand or is it going to be the store brand?

From the pictures of T-shirts in the website, It is not clear whether there is Inkfruit label in it. According to the company, the name of the designer features on the label which would be a highly motivating factor for the designers. So with regard to the brand, Inkfruit has to decide and convey its basic brand values to the consumers. In the marketing perspective, I feel that Inkfruit should be branding its T shirts either using the corporate name or other suitable names. Then they can develop designer series based on the results of the community voting.
Another factor is the sustainability of the model. Inkfruit has tapped the enormous potential of ' Word of Mouse ' and ' Word of Mouth and the marketing team has been proactive in reaching out the bloggers and CGM publishers. So far Inkfruit has got tremendous support from the bloggers and online publishers. The brand has to take it forward to the next level of engagement. T shirt is more of an experiential product which the consumer would like to see, touch and feel before

going to make the purchase. So the challenge for the company is to tide over this experiential nature of this product and make the consumer to look at the design and then buy. To do that , the company may have to induce the customer to make trial purchases. Although the price is reasonable at Rs 349, if a customer wants to order it through COD, then the cost will come to Rs 409. This can put off those customers who want to try it off. So the company can rethink on the delivery/ COD cost to induce more trial purchases. It is not easy to make the customers vote for designs and then buy from the website. That requires lot of effort from the company. In branding jargon, the level is the Active Engagement where the consumer will use their personal time to participate in activities connected with the brand. Inkfruit is a unique brand with lot of potential. The realization of this potential is dependent on the effort of building a community around this brand.

Threadless Story
In 2000, two young t-shirt enthusiasts wanted to make their own online t-shirt design competitions. But instead of using a focus group, they would let the designers themselves pick the winner. They founded the online community of Theadless.com, which is based on the democratic principle of letting the users decide what should be produced. On Theadless.com, designs can be submitted by anybody. Threadless.com receives about one thousand designs every week. Then, community members (now numbering around 600.000) vote for the best design. The company picks nine shirts from the top 100 to print. United Stationers built a project called marketopia the goal of which was to understand the unique needs of each one of the retailers (N=1) and help them tailor their operations to serve their customers better. Each retailer can have a unique product portfolio, focused promotion programs and the ability to respond quickly to their customers demands. United Stationers sources their products from a large network of manufacturers who also provide a significant portion of the advertising and promotional budget (R=G). In the beginning, the winner would get a free t-shirt with his/her design. Today the winner is awarded with a price of $2000 plus a gift certificate of $500 while Threadless.com keeps the property rights. The new business model became a great success with sales of US$ 17 million in 2006 and US$ 30million In 2013. Following the footsteps inkfruit has a huge potential to grab Indian market and ample opportunity to give consumer what they want.

Strategy: was, Is and will

Was: when started in Indian context, we positioned ourselves to be purely online brand.
Challenges:
Internet penetration: much lower in India than US (Threadless.com is growing at a pace there) Lack of trust on internet shopping

Now:
Retail partnership: For those who have not yet find inkfruit.com, 250 retail outlets.

Will Be: Expansion brand and product in 3 major way.

1. Increasing tie-ups with retail outlets. We hope to have around 400-500 retail outlets (Using Franchise model) 2. Increasing entire inventory bandwidth and expanding product range from T-shirts to sweatshirt, hoodies, wallpapers, canvas, Bed-sheet etc (all designers). 3. Looking to setup exclusive Inkfruit outlet as well.

SWOT Analysis

Conclusion
There are a number of players within this space with different price points and positioning. But the segment is still markedly different than the unorganized, non-premium segment which jostles for decent margins competing with the low cost imports from the Chinese and the South East Asian garment manufacturers. Sundry markets in India with rows and rows of garments shop selling garments at only a fraction of their branded counterparts are very popular. But the branded segment has the power of brand and design on its side. The consumers buying in this segment have graduated higher up on the Maslows hierarchy, and dont see apparels as mere commodities anymore. They have come to experience their clothing as an expression of their individuality. Both brand and design address this need.

Brands are expensive to build though. Investing in brand advertising & communications, integrating the physical supply chain, renting & running stores at high rents are cash hungry operations suited for market players with deep pockets. Therefore brand aint something that small, new entrants could hope to build quickly unless they have some innovation hidden up their sleeves. Over and above the smart handling of their supply chain, the stage at which inkfruit creates most value in its business model is the co-creation stage itself. Getting the supply chain right is cool but getting the design right is essential; So much more when thats the only moat between you and the low cost competitors.