There’s a huge buzz about Indian e-commerce space. Snapdeal bagged 280 crore funding in a round led by eBay, and then it was part of $16 million funding from Intel Capital. Amazon, the largest online retailer in the world has opened up in India too as Amazon.in.
Indian e-retailing market is still in its nascent stage. According to 2012 Crisil report, Indian online retail industry will grow from Rs 32 billion in 2012 to projected revenue of Rs 100 billion in 2015, a CAGR of 45-48 percent. Internet users and 3G penetration is expected to grow at an estimated compounded rate of over 60 percent through 2015 which will result in over 180 million users in India with access to online retail.
The stats for online market place in India are very alluring that it is already crowded by many sites. Flipkart, eBay, Snapdeal, Myntra, Yebhi, Jabong, Babyoye, OLX, Quikr, the recent Amazon and many more are competition with each other for their share of pie.
Since there are many in the field it becomes indispensible for the e-retailers to build their own brand value. And in the process many choose the popular media, TV. The money they are spending on the ads are increasing to the mammoth proportion. There is about 50 percent year on year growth on ad expenditures, but than the profits are very feeble.
Some of the reasons that make Indian e-commerce, especially e-tailing, currently unprofitable include high customer acquisition costs, high inventory carrying costs, cash on delivery offer, and high cost of fulfillment, and for the business to be sustainable they have to be rationalized. At this point, most e-tailing brands are financing customer acquisition through venture funding and in such a scenario the marketing needs to work that much harder.
This is an industry with a long gestation cycle and hence the initial investments are bound to look pretty high. E-tailers and their investors may find solace in the popular tale of Amazon. It started in 1995, went public in 1997 and recorded its first profit in 2004.
The perseverance and the tactics used by Amazon has taken the company to the place where it is now, “world’s biggest online retailer.” Indian e-commerce companies can learn a few things from the one who started it all, Amazon. Here’s a take at three of them as compiled by Times Of India.
#1 At What Cost?
Indian e-retailers are spending a lot on establishing their brand name, “E-commerce is seeing another surge in activity led by e-tailers with ad spends increasing almost 50 percent year on year,” says CVL Srinivas, CEO, GroupM South Asia.
If the current crop of Indian e-commerce brands have one lesson to learn from the likes of Amazon who not only survived but thrived, it is that current levels of spends cannot be sustained. Seema Gupta, assistant professor — marketing, IIM Bangalore, points out that Amazon and eBay spend 3.5 percent and 21 percent of their revenues, respectively, whereas the marketing expenses of Indian counterparts such as Flipkart is 20 percent.
#2 Live within your means
The high budgeted ads and marketing may make an e-retailer a ‘zing thing’ with the customers. But the matter of fact remains unchanged is that, they are just destinations and not the actual manufacturers of the product. And destination brands are built virally and organically, according to AlokKejriwal, CEO and founder, Games2win.
So the non-inventory led e-commerce sites, for instance, provide no value added service and yet have higher marketing expenses than companies in the inventory-led segment. Furthermore, India is not a mature e-commerce market. It’s just the potential that makes everyone salivate since internet penetration is still low. According to Raghu Bhat, co-founder, Scarecrow, all players are trying to create brand awareness, acquire customers and also change consumer-buying behaviour simultaneously.
However, another cause for concern is that fundamentally e-commerce brands are built through the consumption experience not national TV campaigns, which send customer acquisition costs to stratospheric heights.
Says Chris George, founder and group CEO, EBS Worldwide, “The insane levels of funding that has gone into the sector is nothing short of a poker game. Everyone is doubling down, waiting for the other guy to blink or perhaps for Amazon to waltz along and buy the brand with the highest decibles. I could be wrong, but I don’t think Amazon really thinks like that. Customer acquisition costs for e-commerce companies in India range from Rs 500 to Rs 1500. How the hell are you supposed to make money to fund this?”
#3 Advertising is no child’s play
In and around 2000, most hoardings in the city of Mumbai were bought out for two years by start-up internet companies, and such “irrational advertising,” has not changed yet, says Alok Kejriwal, CEO and founder, Games2win. This particular behavior trait is largely driven by three factors, he says, next round of funding. Second, outspend and crowd out the competition. But that would work if there were two or three not 23 companies in the fray. And lastly, the misconception that advertising builds loyalty. “They would be better off spending the budget on delighting customers. Rather than advertising on TV, imagine if a Flipkart spent some of that budget sending its customers a surprise gift with a purchase. It could be anything, a pizza even. That will get them loyalty better than some cutesy film featuring kids with adult voices,” says Kejriwal.
Don’t get them wrong, who doesn’t love discounts, but service matters too. Says Professor Gupta, discounts will slowly have to be reduced once more and more customers adopt e-commerce and move online for convenience. Differentiation should come from service.
Perhaps e-retailers could learn a thing or two from the home-grown travel portals. Beginning with air tickets, they moved on to hotel bookings and much more. The top three players — Makemytrip, Yatra and Cleatrip — have a combined 90 percent market share.