The capillary effect

The capillary effect

As a user logs into, he receives personalised recommendations based on his earlier buying behaviour and the behaviour of other customers. If he bought a business book, ‘Good to Great by Jim Collins’ last week, one can almost be sure Amazon would recommend that he read ‘Steve Jobs: The Exclusive Biography’ next. Amazon’s sophisticated algorithm does this, not randomly, but thanks to the analytics it conducted on customer data.

Unfortunately, when you walk into a bookstore in person, the same level of personalised service is absent. The reason is simple: brick and mortar retailers, traditionally, have never been able to convince their customers to part with their information. Now, a few IIT-Kharagpur engineers are out to change this trend and help brick and mortar retailers solve the customer engagement problem using a cloud-based solution.

“The goal is to make the process simple and ensure that gathering and using customer data flows in seamlessly into the retail process.”

Aneesh Reddy, Krishna Mehra and Ajay Modani co-founded Capillary Technologies (Capillary) in August 2008 to help retailers get to know their customers better. Their idea was simple: eliminate the paper-based registration form and identify customers with their mobile numbers. At point of sale, ask a customer for his name and number, link all his future purchases to his unique mobile number and then shower him with discount offers and rewards based on analysis of customer data. Reddy, currently the CEO of Capillary, says, “The goal is to make the process simple and ensure that gathering and using customer data flows in seamlessly into the retail process.”

In the beginning

Reddy and his co-founders, Krishna Mehra and Ajay Modani, were batch mates at IIT-Kharagpur’s batch of 2006. They had worked together, while still in college, to setup the institution’s entrepreneurship cell. After working in companies like Microsoft Research and ITC Limited, the team decided to join hands again in mid-2008. Reddy says, “We were not very clear on what we wanted to do, but were excited about both mobile and retail.” After experimenting with a few ideas that failed, the entrepreneurs eventually decided to build a cloud-based customer engagement tool to help retailers, and Capillary was born.

In its early days, the company won US $100,000 in an international business plan competition organised by Qualcomm Ventures, a corporate venture capital firm owned by telecom major Qualcomm. At the time, the company also worked with a few marquee clients to whom it had proved the value of a retail CRM (customer relationship management) solution.

The company, today, serves a retailer on various customer engagement activities like managing reward points and gift voucher programs, cross-selling and handling closed loop referral programs. “Now, we have a unified platform for all marketing efforts for a retailer,” says Reddy.


Capillary Technologies

Founders: Aneesh Reddy, Krishna Mehra and Ajay Modani

Year: 2008

Location: Bengaluru

Focus: To become a global leader in cloud-based retail CRM

Funding: US $1.5 million from several prominent angel investors

Nurturing a client

Capillary’s business model is fairly straightforward. A retailer pays the company in ‘per store, per month’ model, based on the extent of marketing services availed from Capillary. Its retail clients have the option of experimenting with the platform in a few stores and then extend the use of the software to more stores depending on the outcome. Talking about the return on investment, Reddy says, “Even if sales go up by 4 per cent in a store, it is well worth the effort. It is the simplicity of the platform, especially in terms of a customer’s time taken that makes it work for us.”

In March 2009, the company got its first client, Future Brands, and setup the Capillary CRM platform for two brands – Urban Yoga and John Miller. It now works with over eight brands in the Future Group umbrella. It also manages One League, a unified rewards and customer engagement program, for all these eight brands.

International foray

After seeing initial traction in India (over 90 per cent of its revenues still come from India), Capillary decided to expand globally to serve retail stores in London, Dubai and Singapore. It setup its London and Dubai office in March 2011 and its Singapore office in September 2011. “Typically, our initial clients in other geographies are foreign brands that are also present in India. We figured the technology platform was in place, so it made sense to expand our reach to other regions,” says Reddy.

Capillary got a strong foothold in this market as it was an early entrant in this space. Even now, several large retail companies don’t use a cloud-based retail CRM platform. Physical data forms are still common, but a large chunk of in-store customers never get around to filling it. In India, with a booming economy, the company grew over seven times in FY 2011 and touched revenues of US $1 million. Reddy says, “We’re hoping to multiply our revenues by five times in FY 2012.”

As the company scales, the role of its angel investors become more crucial than ever. The company counts, among several others, Rajan Anandan (managing director of Google India), Venkat Tadanki (who sold Daksh, a BPO to IBM) and Naresh Malhotra (former managing director of Café Coffee Day) as its investors.

Capillary works with various large retail clients including Pizza Hut, Gitanjali Lifestyle, Puma, Peter England and The Raymond Shop, and currently serves over 100 brands. At the sector level, Reddy does agree that there are a few risks associated with a probable slump in the global economy and increase in salary levels of technology professionals. “But our growth in India, Middle East and south-east Asia is promising, so we should grow strongly irrespective of the current economic cues,” he says.

In the near-term, Capillary is looking to raise over US $10 million in equity financing to scale up aggressively. The company is now focused on expanding its client base and offering more services to its existing clients. At a broad level, the mobile CRM space has been largely untapped and till date, retailers have had a tough time getting to know their customers. If Capillary manages to bring about a change here, it might just be the game-changer the retail industry is looking for. A few years back, the U.S.-based acted as the game-changer in the enterprise software space. With its cloud-based offering, changed the way enterprise software was consumed, deployed and used. Can Capillary be the in the retail CRM space? Time will surely tell.

Concept in Brief

Capillary Technologies was founded on the belief that if it could help a retailer engage with its customer better and do it with an easily replicable technical methodology, there was a scalable business that can be built. Today, the company has made early in-roads in helping retailers with customer engagement. Its clients include Future Brands, Pizza Hut, Gitanjali Lifestyle, Puma, Peter England and The Raymond Shop, among others. Capillary’s technology eliminates the use of paper forms and instead identifies customers and what they buy with their mobile number. Once this is done, the customer data is analysed to manage reward points, offer special discounts and run loyalty management programs.

There are two aspects about the company that stood out: one, the entrepreneurs carefully picked out angel investors who could value-add as the company scales, and two, the focus on client acquisition and sales and the ability to clinch large companies as clients. The key to the success of the company lies in its ability to ensure the continued usefulness of its product to retailers.

Capillary operates in a space that is crucial to the brick-and-mortar retail world. Knowing a customer is one of the biggest advantages of e-commerce firms. If this gap, of not knowing a customer in traditional retail, can be bridged, it could be act as the game-changer in the retail space.

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