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Shopping Without Dropping
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Broadly speaking, the e-commerce industry has been growing at the rate of about 10-20 per cent every year. When Jeff Bezos began selling books online at Amazon in 1995, he said, "As we grow, we will sell everything at Amazon except Cement!" And, 15 years later, I think his words are right on the money. If you look at various stats, you will see numbers like over 80 per cent of people using the internet have purchased something online and about half of them shopped more than once. In that sense, my view on the overall e-commerce industry is very positive. From a consumer standpoint, think of the advantages of shopping online:
- Saves time
- Saves money (e.g., less or no taxes, cheaper, travel money etc.)
- Easy to compare prices
- Not crowded
|REGION||TOTAL E-COMMERCE MARKET (US $)||ANNUAL GROWTH RATE (%)|
Now let's talk about India. The buzz about e-commerce has always been there in India. In fact, there was a bigger buzz about online retailing a decade. However, it turned out to be a false start for three reasons: One: poor infrastructure in terms of fast Internet connections, second: non availability of a sound business model – the companies now have a much more robust business model — the models now are better adapted to the Indian consumer needs. Third: a bad user experience, the newer companies have fixed all of that now and that's why we are seeing the buzz again after 10 years.
India is now one of the fastest growing countries in E-commerce with so many e-commerece websites such as ebay, yebhi.com, shopping.rediff, futurebazaar.com, flipkart.com, indiangifts portal, 20North, fashionandyou.com and 99labels.com that have sprung up in the last 2-3 years. I think in the next 10 years, e-commerce will reshape the retailing world in India.
There are mainly three types of successful e-commerce business models:
- Classic Retailing, e.g. the Amazon model
- Auction and Reverse Auction sites such as e-Bay and PriceLine
- Group buying sites such as GroupOn and LivingSocial where the discount depends on the volume
All these models have the potential to be successful in India. There are three key factors for e-commerce sites to be successful in India:
- Understand the psyche of the Indian consumer and figure out why the Indian consumers buy what they buy. People have the impression that Indian consumers are just price sensitive. In fact, the typical Indian consumer is value sensitive, not price sensitive. Value implies perceived benefits of a product minus the perceived price.
- Adapt to the Indian audience. This is one of the mistakes multi-nationals make when entering India – they take the same product as in the western market, convert the price from dollars to Indian rupees and then wonder why their products don't sell in India. To be a successful retailer in India, companies need to adapt both the product and the pricing to suit the needs of the Indian consumer. These changes include pay on delivery, buy two products and return one (Yebhi.com does that), customised designs, western brands in clothing, perfumes etc. Appropriate product configuration and corresponding pricing need to go hand in hand. Future Group, for example, organises its Big Bazaar store to really give a true "bazaar" feel to its consumers. The goal is to provide a good user experience and the more successful companies have been doing that in the past decade.
- Logistics. Think of the postmen in India – they deliver mail with 99 per cent accuracy without having street signs or even house numbers! And courier companies are getting to be as good too. E-commerce sites need to have a good tie-up with the delivery companies so customers can have their products delivered cheaply, quickly, and safely. Here's an idea, how about letting consumers shop on the web but deliver the goods on the same day (at least in large metro areas) via delivery men (or women) driving on scooters or motorcycles or even cars! This has been quite a successful model in emerging markets such as the Vietnam.
One challenge for e-commerce companies is being able to reach out to rural India and delivering products there effectively. One issue is about connectivity. Second is to tailor the products to needs of the rural market—think about how the telecom companies have been able to sell cell phones to the people in villages with customised plans and attributes for that market. Third is, as mentioned — product and pricing need to be in unison — even in the rural market.
Finally, here are the more interesting developments during the past decade that should be of interest to e-commerce firms, particularly in India: (1) Data storage costs have gone down exponentially, (2) Computing power of machines has gone up exponentially, and (3) the availability of rich customer data as consumers click through various sites on their online shopping trips. These advances plant the seeds for developing business/predictive analytics tools that improve both customer experience as well as firms' bottom line. These analytics involve three modules: (i) data collection, (ii) estimating models of customer behavior, and (iii) optimising firms' actions. Apart from improving the bottom line, these analytics also help consumers via reduced prices online, customised recommendation systems, and better and more tailored products to consumers. In summary, these developments present a win-win situation for both consumers and e-commerce marketers.
Praveen K. Kopalle is a professor of marketing at the Tuck School of Business at Dartmouth University