Home Research Changing pace of e-tail in India

Changing pace of e-tail in India

By   and
SHARE

Intense competition among online retail players in the industry has seen a general rise in acquisitions, resulting in consolidation. Top players are acquiring smaller rivals to increase their market share, in many cases influenced by international investors. Unrelated diversifications have also started gathering steam as e-retailers are now attempting to ensure a stronger outreach and connect with customers. This is aimed at getting higher timeshare, mind share and wallet share of the already acquired customer. This chapter explains how widespread adoption of digital wallets, enhanced customer experience, emergence of private labels and social commerce are aiding the overall shift towards in the country.

Changing pace of e-tail in India
Intense competition among online retail players in the industry has seen a general rise in acquisitions, resulting in consolidation

Overview

Th e online retail market in India has grown from its relatively nascent state in the mid-2000s to its current market of around Rs 1,300 billion. Strong government initiatives coupled with reducing prices of smartphones and data plans by telecom service providers have led to an increase in adoption of internet enabled shopping in India. Further, widespread adoption of digital wallets, enhanced customer experience, emergence of private labels and social commerce are aiding the overall shift towards e-tail in the country.

The market growth is also complemented by evolving consumer perception – from an initial view of e-commerce as a heavily discounted market place, to today, where users seek an online experience and convenience of ordering products from their hand held devices. The market has about 80-100 million online shoppers among the 450 million internet users. The new shoppers are predominantly from tier II and III cities which come across as potential for future growth. They are joining the online shopping bandwagon due to various digital interventions by e-retailers as well as ecosystem players.

Intense competition among players in the industry has also seen a general rise in acquisitions resulting in consolidation. Top players are acquiring smaller rivals to increase their market share, in many cases influenced by international investors. Unrelated diversifications have also started gathering steam as e-retailers are now attempting to ensure a stronger outreach and connect with customers. Th is is aimed at getting higher timeshare, mind share and wallet share of the already acquired customer.

Many private labels promoted by leading platforms are also on a rise with significant investments being made by leading players in categories like food and grocery, fashion, electronics, home & furniture.

It is not just the e-commerce players benefitting from this growth, but traditional players who are now investing significantly in e-commerce and alternate commerce channels are also to reap the benefits.

Emerging Trends

The e-tailing industry is experiencing rapid evolution in the ecosystem with innovative approaches like social commerce and personalised services redefining the operations for all major e-commerce players. Social media monitoring, activity tracking, AR based apps, etc. have helped in enhancing the overall experience of customers while helping them create advocacy for brands by providing easy options to share their experiences. Few of the major trends that are likely to shape the industry are:

– Rising internet penetration: Internet users in India expected to reach 500 million by June 2018

– Mobile – All enveloping: A major chunk of the traffic on e-commerce portals today comes via mobile apps. Affordable smartphone options and cheaper access to the internet makes it an attractive space, driving traffic in the future

– Vernacular apps: Language diversity and support on apps could help in on boarding customers from tier II and III cities

– Personalised content: Data tracking and use of digital technologies could help in providing specific customised suggestions and location specific options/ offers

– Evolving Omnichannel: Reinventing the omni-channel strategies like BOPIS (Buy Online Pick In Store) and ROPIS (Reserve Online Pick In Store, etc.

Technology-driven Business Models

A key difference in the Internet enabled operations of the businesses today vs the offline setup of yesteryears, is the opportunity to capture data at each step of a business transaction and even much prior to an actual sale. This can be processed to generate the insights required for decision-making. Let us take an example of e-tailing – as a customer, as soon as you log in to an e-commerce website, all your activities are closely scrutinised, including information about the time that you spend on each page, the type of products you browse and what you add to your cart/wish list but do not purchase, etc. Not only is the transaction history of individual customers available for analysis, but the trends across types of products, delivery modes, mode of payment, geographical/ demographical data, complaints and a host of other parameters are recorded.

Companies today, have access to more data than they can fruitfully analyse and act on. Th ere has been a gradual shift from using historical data to identify purchase patterns and customer preferences, to capturing behavioural data in order to predict and pre-empt customer purchases which helps in better conversions and reduced costs.

Predictive algorithms, artificial intelligence and technology tools today help generate relevant insights at much better speeds than the traditional technology services companies. Thus, the business analytics team in an e-commerce company becomes a key spoke in the steering wheel during the race among these players to outperform rivals.

Personalised Content – Today, the onus is on the companies to best utilise the data available to them in order to create generic (mass market) as well as specific (personalised) content in their attempt to acquire new customers and increase the wallet share from current ones. While the conventional channels of television and print media help the former, mobile app and website-driven marketing is key to the latter. This further helps in reducing friction while shopping online.

b For each of the e-commerce players, the data available to them and its effective use to create meaningful content becomes key to differentiate their offerings and stand out in the e-tailing labyrinth in India. Digital advertising has proven itself to be one of the most effective channels justifying the cost and enhancing the reach of campaigns making it the preferred choice. An interesting example is when products for senior citizens are marketed to customers in the age group of 30 – 45, where the buyer is the child and the user is the parent.

Content Generation – Marketing content used to be an area for a select few in the e-commerce space, until a few years ago. Today, with widespread acceptance of usergenerated content, companies encourage users to market their brands online and generate content which perhaps carries more credibility than marketing campaigns, in turn creating brand advocacy. Effective marketing campaigns help in brand recognition and recall at nearly no cost to the company. Th e growing number of consumers is likely to further fuel the growth of the e-commerce industry and big data is only expected to get bigger and organisations shall have to continuously evolve in the race to make the best use of this.

Impact on SMEs

E-commerce companies have been fairly vocal about their positive impact on SMEs and their contribution towards their growth and expansion, through campaigns highlighting the same. E-commerce has given several SMEs an additional channel for customer acquisition and sales through their platforms.

The e-commerce platform benefits the SMEs by

– Helping in focusing on core business – By taking over activities such as order management, logistics and complaints handling, e-commerce companies enable SMEs to focus on their core business i.e. manufacturing (or trading)

– Expanding their customer base – On their own, an SME may not be able to reach customers beyond the immediate geography and their expansion will be constrained by their ability to set up offline presence (offices or sales outlets). E-commerce gives them pan India reach from their base location

– Reducing costs – Customer acquisition costs for SMEs are reduced as they get access to captive customer of the platform, as well as a potential customer with every new customer added by the platform

– Broadening the off ered modes of payment – An SME may not accept some modes of payment (credit card, wallet, bank transfers, etc.), but the e-commerce company ensures that such a bottleneck does not exist for the customers

– Justifying expenses – Leveraging economies of scale helps the e-commerce companies to negotiate on costs for forward, last mile and reverse logistics from the third party service providers

– Providing additional services – Many e-commerce companies also provide value added services such as analytics on customer preferences, sales and inventory management, among other relevant data points and business insights

– Supporting in non-core activities – They may provide channels for liquidating old/outdated inventory, sale of used goods through appropriate e-commerce websites, support for invoicing and packaging, etc.

It has been found that SMEs who actively adopt internet for business activities boast up to 51 percent higher revenues, which results in 49 percent more profit and a 7 percent broader customer base than their offline-only counterparts.

Future Outlook

E-commerce companies have an entire ecosystem of other companies that are vital to the sustenance of their operations. Many of these companies are startups, and their mere existence is by virtue of the growth and proliferation of larger players in the industry.

Multiple start-ups in the space of last mile logistics, cataloging, analytics, technology, financial technology (Fintech) including payment gateways, online only sellers, aggregators, liquidation/ refurbishing agencies have sprung up in response to the fast growing e-commerce industry. E-commerce companies’ scale and growth is supported by these companies/start-ups and conversely, their growth closely mirrors the growth of the e-commerce sector as a whole.

Innovative strategies adopted by players such as introducing private labels, same day and next day delivery can all aid growth of the sector. The players also have a close focus on developing the subscription based models with categories like food and dairy products as well as predictable consumption products which require regular deliveries eventually resulting in customer stickiness and cross selling across categories.

The Fashion and Mobiles & accessories categories will continue to dominate this sector, however one of the segments expected to grow exponentially is Grocery. Grocery retail in India is estimated to be over 60 percent of the country’s total retail market. Online grocery is still small, but analysts see it has huge potential. It is estimated to be around US$ 500 million to a little over US$ 1 billion currently and expected to cross US$ 3 billion to US$ 5 billion or even much more by 2022.

Along with gaining market share, the focus of e-commerce companies will be on geographical expansion, enhancing customer experience, cost eff ectiveness and improving customer stickiness.