INDIAN INSTITUTE Of MANAGEMENT RAIPUR

Nykaa
Authors: Sai Sachin, Isha, Priya, Anurag

Company description

Industry e-commerce

Headquarters Mumbai

Founded 2012

Founder Falguni Nayar

Type Private

Products Mobile app, website

Revenue $2.5 million

No. of employees 5000

Nykaa derived from the Sanskrit word “Nayaka” meaning actress or one under the spotlight
is a multi-brand beauty e-tailer selling cosmetics and wellness products. Its headquarters is
located in Mumbai, India. Founded in 2012 by Falguni Nayar, Nykaa today sells almost 850+
curated brands and 1 lakh products on its platform running across the length and breadth of
the country to almost every zip code using the services of leading and reliable courier
companies ensuring their mission “Your beauty is our passion”.

History of The Company

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 Nykaa: A Report

Nykaa.com is the entrepreneurial dream of Falguni Nayar, the former managing Director Of
Kotak Mahindra Capital Company. Falguni saw that there was a huge opportunity in the online
space and considering all the different areas she could invest in or start a company, she
focused on beauty. Initially, the company raised money through multiple rounds of funding.
In 2014, it raised INR 20 crore through private investors and further raised around INR 60
crore in Series B funding in 2015. Nykaa closed its last round of funding by raising INR 104.3
crores. After its launch in 2012, the first order was placed on October 24, 2012.

COMPETITION AND DYNAMICS

Though fellow competitors existed in the market from Nykaa’s inception, by 2018, every
women of India preferred ‘Nykaa’ over others. Competitors like Birchbox, Ulta Beauty, EO
Products and purpulle.com seemingly created a similar platform to Nykaa, but the lack of
integration of variety of brands and stagnant customer base was helpless to sustain the
business. Nykaa took 5 years to breakeven its business but the importance of encompassing
a larger customer base and value proposition contributed to their success. Currently Nykaa’s
valuation stands at $724 million and soon expected to become a billion dollar company.

Porter’s five Forces

Bargaining power of Suppliers

The suppliers are numerous in cosmetic market. Some of the platforms have their own
inhouse brand suppliers. The internet retailing has 2.9 % of the channel distribution share.
HUL has the major share in personal care and beauty products market. There are various
brands in beauty and personal care products and all of them are trying to increase the market
share. The celebrities are even starting their own personal care brand and they are easily able
to market the product because of the already existing brand recognition of their own beauty
and they are able to sell the products based on the their image. This decreases the bargaining
power of the suppliers.

Bargaining power of customers

The customer base of personal care and beauty products is very large. Due to many
substitutes of these products e commerce website, customers have high bargaining power.
The products are undifferentiated. The switching cost is very low. Indian shoppers are very
active during festive seasons as well as some specific occasions. Customer look for the price,
convenience and variety and where ever they find the best of them they go to that channel.
The websites need to follow various measures to make profit.

Threats of substitutes
Substitutes for the online retailing are brick and mortar stores. Beauty and personal care
products are one time trial products. It requires touch and feel connection to convert the
customers or it require loyalty of the customer to buy the product through online retailer.
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 Nykaa: A Report

The threat of substitutes is high and to fight with the substitutes over this matter, online
retailers have adopted an omni channel strategy.

Threats of new entrants

Beauty product market is rising very rapidly, with the CAGR of 9% till 2023. This is because of
the rising disposable income and because people are expected to have a better lifestyle. The
retail stores, brand outlets as well as specialty stores are the major distribution channels for
these products. The value of Ecommerce for the beauty and personal care market will
increase to 33.5 % till 2023. The suppliers are many. Internet is an easily accessible and
decreasing the cost of marketing and operational cost. This increases the threat of new
entrants. The switching cost for customers is low. It requires a good access to the distribution
channel as well as transportation cost.

Rivalry among existing customers

The rivals are fighting based on large variety of brands that they are showcasing on the
website, price, convenience, as well as offers and discounts at the appropriate time. They are
all trying to have the maximum customers and maximum profit but it increases the cost. The
rivals are required to be best at logistics. Participants with excellent service, convenience and
variety can win many customers.

Business model: Inventory Based

1. Value Proposition: With the in-depth product offering and varied information about
beauty products, Nykaa enables the customers to make best choice for themselves. It
caters to all beauty needs for any woman in India. With being reseller of the original
products, having flexible payment options Nykaa has become a formidable beauty
player in India.

2. Market Segment: Geographic: Urban cities, Tier -2, Tier-3 cities. Demographic :
Females aged - 18 to 35. Target customers for Nykaa are women who look for wider
availability of products and information related to product usage, that are aspirational
for Tier 2 and Tier 3 segments. For Tier-1, it is about convenience and cost saving.

3. Revenue Model: Inventory based model. As middle men in the regular supply chain
are eliminated in the ecommerce business space, Nykaa is able to provide deeper
discounts to its customers and still make a sizable profit. This motivates more
customers to purchase products on Nykaa and thus increases the economies of scale.

4. Growth Model: Segment Focus and improving the reach. Nykaa is broadening its
product portfolio with a focus on women segment only creating a niche category. They
are becoming exclusive launch platform for products like Kay by Katrina, Kareena
Kapoor Collection by Lakme. In order to improve their reach they are opening more
retail stores in Tier 2 and Tier 3 cities because the economies of scale in logistics are
higher, they aim to bring that down by shipping to the customers in these cities
directly from these stores.

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 Nykaa: A Report

VARIM Framework for Profitability :

Value – Yes
Variety of products,
discounts,
information on
product usage,
authentic reseller

Monetization -
Rare - Yes Yes Adaptable - Yes
New Concept, not To cater for more
common to have Nykaa broke even in 2017,
customers, faster
women centric 5 years after its launch
shipping they are
ecommerce business because they increased
India setting up offline stores
reach and the supplier
opportunity cost being low
due to high economies of
sale

Inimitable -
No
Products are from well-
known brands, other
competitors can develop
similar model and thus it
is imitable.

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 Nykaa: A Report

Multi-Sided Platform

• Nykaa creates a seamless platforms connecting the sellers with the customers. Primarily,
they offer a robust technology platform (i.e., their app and website) with a well-connected
logistics service
• Nykaa satisfies the MSP (multisided platform) criteria by offering
Sellers : A single integrated platform and a logistics supports
Customers : Offer 9000+ products in a single platform with discounts and faster delivery
• Here, Nykaa integrates several types of sellers like – the brands, independent vendors
across the country and its own in house brand ‘Nykaa’ products.

Power of MSP

• Nykaa has helped KAY beauty products by Katrina Kaif to get the maximum customer
reach at very less time. It pushed the products by the recommending them as the
replacement of searches made by the customers.
• KAY products are showcased along with Nykaa’s own products which decreases the
chances of becoming the exclusive. Here customers look for trust over the brand and the
price and discounts.
• The value created with the help of various brands like lakme, Loreal, M.A.C etc., Nykaa
leveraged it for selling it’s own inhouse products, and trying to increase it’s brand equity .

Challenges:

Since, Nykaa is integrating several types of sellers, it may lead to potential conflicts –
especially with pricing, discounts and management.

• Since myriad of vendors are involved, customers encountering fake products is inevitable.
This makes customers to lose credibility not only towards Nykaa but the brand purchased
also.

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 Nykaa: A Report

• Also, post 2017 after its launch of inhouse products under the same name ‘Nykaa’,
chances of Nykaa optimizing the screen space could be possible. For example, when a
customer’s searches “Victoria Secret”, due to unavailability of the item, Nykaa displays its
own in house products despite there are other equivalent brands to Victoria Secret
available.

• Nykaa cannot entirely eliminate the independent vendors (due to the adulteration of fake
products) and source from the product manufacturers alone, as this will make the
operations more complex. Because, multiple vendors across the country paves way to
fetch the items from the nearest vendor to the customer – this reduces the lead time,
transportation cost and warehousing cost too.

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 Nykaa: A Report

Teece Model
High
Imitabilit
y

Nykaa
Low

(Highest bargaining power

profits)
Strategy: Block, Team up

Freely Available Tightly Held

Complementary Assets

Imitability: Low
Nykaa has differentiated itself from others by creating a mutual beneficial relationship with
both its suppliers and buyers. Along with a huge variety of brands, Nykaa offers premium
products only available on their platform like ‘Kay Beauty’ by actress Katrina Kaif. Partnership
with such premium brands attracts and retain customers. These partnerships benefit
suppliers as these premium products are differentiated from other brands because of
exclusivity. Nkyaa Benefits because of the increased demand and buyers find a variety of
premium products in one place.

Nykaa positions itself as multi-brand beauty retailer selling cosmetic and wellness products.
Unlike other online retailers which integrates vertically, Nykaa is vertically integrated which
is specifically for cosmetic and wellness products. Fashion enthusiasts find These unique
attributes associated with Nykaa makes imitability risk low and recreating them requires
network of both suppliers and buyers and a good relationship with them

• Complementary assets: Tightly Held

As the assets are unique for Nykaa only and it doesn’t depend on someone else to
build these relationships, they are tightly held by the company. These assets offer the
right customer value and solidifies Nykaa’s relative positioning. The assets make high
contribution to the customer value and are difficult to imitate.

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 Nykaa: A Report

• Strategy: Block
Best way to defend the market share in this situation is to block other competitors.
This requires further addition to the network of suppliers and maintaining a good
relationship in the future. Further addition solidifies Nykaa’s position of exclusivity
which brings more suppliers on board, hence creating positive network effect on the
same side of MSP. More exclusive brands bring more customers on boards, hence
creating positive network effect on both sides.

Can Nykaa make money here?

As Nkyaa offers both exclusive and nonexclusive products bargaining power differs from
supplier to supplier. Nykaa has higher bargaining power when launching new products as it
provides good platform and an enthusiastic customer base which is ready to try new products
whereas established brands may command equal bargaining power because of their own
customer base. Such conditions make the shifts the overall bargaining power towards Nykaa’s
side.
According to the Teece Model, low imitability and tightly held complementary assets are
beneficial for the party with higher bargaining power i.e. Nykaa.

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