Everything from smartphone usage to VC investments is on the high in India, today. With India all set to beat the United States to become the second largest Internet user population in the world, in 2016, with over 283.8 million users, eCommerce is still not expected to be as large a contributor to retail sales as shops and stores.
Of the many questions lurking in our minds, below were few we needed expert opinion on. With credentials such as ex-founder of ZopNow, CTO – AskLaila.com, and over a decade and a half worth experience in retail and consumer facing businesses, Mr. Bal Krishn Birla, was our obvious choice to fend answers from.
Here is what he had to say about the industry and its challenges
Even with more than 300 million active internet users in India today and 34% of Online Shoppers in India spending above Rs.10,000 this festive season , the Online Retail sales is hardly 0.70% of the total Retail Sales and is expected to grow to about 1% by 2018. What do you think the eCommerce portals should do differently, to capitalize on the fast-paced adoption of the Internet?
BK (Bal Krishn Birla):
We are a large country and the action eCommerce space has just begun. Besides that even organized retail is yet to become relevant even offline. It has moved fast in few categories and slow in some other.
It is not appropriate to look at eCommerce as a single sector. It consists of multiple domains and dynamics of customer adoption in various domains is different. Ecommerce has to expand to various categories to broaden its pie. Currently, it is limited to only a few categories. Besides that reach is also limited to urban and semi-urban areas.
Besides internet penetration, comfort levels of users in doing online transactions, is also another aspect companies need to focus on. In some cases even a hybrid model of online, assisted online and offline can help in expanding the reach.
DI: Over the coming four years, the yearly growth rate of eCommerce is seen to be slowing down from an impressive 55% over 2012-13 to a proposed dip to 23.5% in 2017-18, as projected by eMarketer. What would you see, as the prominent reason, for a future shopper to choose not to buy online?
BK: The pace is also a function of maturity of the adoption in some categories. The pace will taper off in some categories and eCommerce companies will have to expand the category and demographic coverage to maintain lead.
Lack of reachability is another big issue. Big states like UP, Bihar, Jharkhand, Punjab, MP, HP, West Bengal and those of the North East do not have a good coverage by most of the eCommerce companies. Local tax issues as well as security concerns are stumbling blocks for the eCommerce companies.
Another important reason is just availability of small retailers closer to their locations. Organized retail might be new to India and limited to bigger cities but smaller stores have always been around and they have had deep relationships with their customers.
DI: Though the sales are multiplying, so are the losses being incurred by the leading online retailers thanks to the discount led model they have all adopted. While the revenue of Flipkart grew by 476% in 2013-14, its losses also grew by 156%. Although beneficial for the retailers, do you see reducing discounts being a deterrent for new buyers to adapt to eCommerce as a channel?
BK: Customers have been bribed with discount and online has to be cheaper is a default user assumption. It will take sustained time and effort to get customers out of this mentality.
While there might be temporary setbacks in terms of customer adoption, if eCommerce companies focus on the consumer’s convenience angle in their marketing, it will bring more customers back. Customers who use eCommerce are already split into price conscious and convenience conscious categories. Currently eCommerce is in a customer acquisition phase and lot of customers might be buying due to lower prices but once they get accustomed to convenience, they will find it difficult to go back to shop in offline stores.
DI: The many discounts and offers have been, for long, calculated as acquisition costs by most investor-funded eTailers, burning invested capital in due course. What are the three tweaks in the eCommerce business model you would suggest to be done, to reduce the losses and increase sustainability and profit?
BK: First simple step is to reduce technical cost. Companies do not have optimized resources in the way they run their technology teams in terms of software as well as hardware. Cloud based technologies can reduce overall hardware costs. Right sizing the software organization within eCommerce companies is another aspect of reducing costs.
Marketing is another function which can have drastic cost optimization. Mass media advertisements lead to a lot of wastage and are not always the most effective way of customer acquisition. In the longer run, loyalty programs and re-engaging your existing customers to increase a lifetime value of customer are key elements that could make businesses profitable.
The third important aspect is using prediction sciences around demand and supply. A clearer prediction can optimize the entire supply chain and reduce cost of manufacturing, transporting and selling. After all, eCommerce is the process of compressing the supply chain cycle which leads to cost saving.
Retail normally works on providing discounts on few things to create a perception of low price and then selling other products at full price. Bundling of products to make pricing opaque could also be used by eTailers to improve their margins.
DI: Although there have been quite some focus on consumer friendly processes and procedures by Indian eCommerce companies in the past, including ‘Try and Buy’ and ‘Cash On Delivery’, no radical change in adoption of different modes of payment has been seen yet. Do you see the scenario changing anytime soon and why (kindly reason both positive and negative possibilities)?
BK: Some of the ecommerce companies have been talking about creating offline kiosks which operate as a franchisee for the main brand. While these models can reduce the cash handling issues for large companies, especially if they can operate on pre-pay model with these franchisees, real advantages will be seen only when banking reaches a larger number of people and people feel comfortable paying online. Open wallets with options to load money onto them offline, can also contribute to more online purchases.
Customer adoption of new modes of payments will have the usual frictions due to trust. If banks can create these new modes of payments, the trust problem can be solved relatively easily as customers are already used to park their money with them. But banks are large organizations and their adoption of technologies is always delayed by few years.
DI: In the next five years, what do you think is the revolutionary change that eCommerce should grow through, to turn profitable?
BK: From a user perspective we will see usage of mobile devices as the primary shopping device. Some companies are already seeing a great traction on mobile. Re-engagement of users on mobile devices will become the new age, cost effective, personalized, real-time marketing for eCommerce companies.
eCommerce will expand to lot of new categories. eTailers who are able to build a bigger and broader shopping basket, while keeping their technical and marketing costs low, will be able to build profitability. Some of the offline and online players will merge to create much bigger retail companies and a hybrid model will evolve and achieve better scale and profitability.
On the whole, faster adoption of newer modes of transaction and technological advancements focused on convenience of the larger audience seems the magic portion to beat the offline competition and shoot beyond the market predictions. And with the routines of this world growing lazier by the day, the secret sauce of success seems aiding it rather than challenging it.
Cheers to the Couch Potatoes!