Show Me The Money, Honey

About $30 billion of consumer spending in India today is influenced by internet and with growing access and use, the financial impact of internet is expected to touch $150 billion by 2016, according to a Boston Consulting Group (BCG) report.

“India’s internet penetration – about 125 million in 2011, is expected to nearly triple to 330 million by 2016,” said Arvind Subramanian, a BCG partner and coauthor of the report.

Pre-purchase research like price comparison, product research, and search for locations to discounts and offer; drag maximum people to internet. “This influence is evident in high-priced product categories like automobiles, laptops, consumer durables etc – where the purchase cycle is long or requires significant investment,” Subramanian says.

Of the total financial impact of internet, only 20-30 per cent - $6 billion to $10 billion – materialises into online purchases in India. The number remains unimpressive given the size of India’s population and how quickly consumer spending is growing overall, the report states.

The main reason being cited for the stark difference between online research vs actual purchases happening are online payments. “Low penetration of credit cards and lack of trust among the consumers makes them just research about products,” says Subramanian. “India requires something like Alipay escrow accounts, a payment method widely followed in China,” he adds.

The other reasons for lower conversion rates are infrastructure issues that lead to delivery problems and logistics challenges and well-entrenched behaviours.

Maximum conversion rates are seen in air travel bookings where about 42 per cent people research for the product and 21 per cent end up buying it online, while the lowest can be seen in high ticket items like automobiles and consumer durables like TVs. (See Table) 

According to the report, consumer online spending is growing in insurance, utilities, direct-to-home satellite-TV subscriptions, and other categories that involve frequent repeated purchases or regular transactions such as bill payment and premium renewal.

However, according to Subramanian online product reviews are yet to take off in India, mostly because there aren’t enough sites offering reviews. “social media are popular but drive only about 25 per cent of commercial consumer traffic. Most people in India look at Facebook and similar sites for entertainment, not product information or advertisements,” he says.

According to the report, about 34 per cent of the internet users are from small urban areas and 25 per cent are from rural areas. Interestingly, 45 per cent of urban consumers with access to internet use only mobile devices to connect.