Indian e-commerce industry might be at a nascent stage but it is booming as Indians are becoming comfortable shopping online. The secure payment modes, better logistics for distribution and efficient customer service has brought about this change. Manish Taneja, Co-founder and chief executive officer, purplle.com shares the dynamics of the industry and a peek into what 2013 could look like.
The global retail market is pegged at USD 16 trillion wherein the total e-commerce market is estimated at 680 billion dollars, which is 4 per cent of the total retail. Whereas, Indian e-commerce currently is 0.2 per cent of its total retail which equals to USD 1 billion of USD 500 billion. It is projected to witness significant growth in the next few years, with the industry likely to touch USD 8 billion by 2015. Given the size of Indian market, growing consumer base, changing lifestyles and lack of infrastructure for malls or stores there is a huge scope for e-commerce growth.
Statistics show that in 2000 there were 3 million internet users in India which has grown to 120 million in 2011. 35 per cent of the internet population comes from metropolitan cities while 48 per cent hail from second tier and third tier cities. Furthermore, the number of mobile users in the country is expected to touch 900 – 1000 million by 2015. With almost 900 million mobile phone users in the country,broadband and internet services are expected to grow through wireless. This will consequentially lead to further growth in the e-commerce market via mobile.
Challenges for Indian E-commerce
Most e-commerce portals can be easily bifurcated into two business models:
(a) E-tailers: Stocking up the best sellers and real time sourcing for most of the products for example Flipkart, Purplle.com, and Jabong etc.
(b) Market places: Third party sellers who showcase products from diverse categories under one portal for example Ebay, Snapdeal, Naaptol etc.
Most e-tailers are utilizing their funds and energies in acquiring users and customers by luring them with big discounts and innovative marketing strategies. This spend becomes important keeping in mind the “value conscious” Indian consumer behavior. By that, I mean a mindset that keeps getting the best out of their money. Thus, “bargain hunting” from consumers is a big challenge for e-tailers. The emergence of new e-tailers widens the scope for comparison. This leads to very high customer acquisition cost and marketing spends. Therefore, funding and profitability become real challenges for e-tailers.
A recent report states that 52 e-commerce companies have raised close to $700 million venture capital over the past 3 years and out of them, only 30 per cent could raise the next round of funds.
Payment challenges are myriad ranging from the hidden costs, cash on delivery charges, and logistics. In India 50 per cent to 70 per cent of transactions are cash on delivery. The downside of e-tailers offering Cash on Delivery (CoD), is the return rate of goods which is as high as 10 per cent – 20 per cent in some categories like fashion, while categories like electronics offer poor margins. Leaders in the space are using CoD as a model for successful penetration into tier 2 and 3 cities to win customer confidence, and are increasingly becoming aware that this is not suitable for scaling up as the infrastructure is not supportive in these cities.
As far as categories are concerned consumer electronics, books and apparel are the most searched categories online followed by kids’ product, beauty and health care. For retailers dealing with consumer electronics, books or apparels, internet and mobile can be the two biggest game changers.
Mobile has proven to be a stable complement e-commerce. There are more and more smart phones, androids and apps in India today, then ever before. The Internet and Mobile Association of India (IMAI) estimated that India’s e-commerce market is growing at 70 per cent every year. While, travel remains the leader here, e-tailing will grow at a faster rate in the coming years.
A recent research shows that online search is used the most for “Research”. And, I can’t deny having used online search before every important buying decision myself. The first step to any purchase is an online research about the product, brand followed by the online hubs who sell it.
50 per cent of people who bought Automobile in 2011 researched it online and 60 per cent of them changed their mindsets about which car to buy after researching. So, that is the true power of internet which e-Commerce is part of. Customers these days, search about the background of ‘e-tailing’ websites before shopping from any particular site. So, one needs to keep in mind that their online presence in terms of reviews and quality of services is very important.
Customer service is the key, if we can create a customer centric e-commerce that speaks for itself. Zappos inspires me the most in this aspect. If we have a Zappos type approach for our customer we have the biggest edge above others.
Internet has changed the way India shops. A successful e-commerce industry is about changing the way India sells. It is definitely the most exciting phase for online retailers and consumers as this unmet demand will put India on the global map as one of the largest e-commerce markets in the coming years.
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