Understanding the e-commerce ecosystem in India

The Indian e-commerce industry is hot like never before, led by enormous investments by major players like Flipkart and Amazon. The billions of dollars now committed to this sector by the leaders in this space are not only a leading indicator of the potential of online retail in the country but also a reflection of the changing shopping behaviour of a younger, Internet-savvy audience.

In this context, the event titled “Deep dive into e-commerce” organised by Google Business Group (GBG)- Mumbai on September 20, 2014 was extremely pertinent, as it sought to understand the phenomenon in detail. Anchored by Sreeraman Thiagarajan, Chapter Manager of GBG Mumbai, the event featured Rajiv Prakash, former CEO of Futurebazaar.com & founder of NextIn and Harish Singla, Director- ISB Hyderabad & founder of REIT India.

Sreeraman kick-started the event by recapping the latest happenings in the world of e-commerce, the biggest of which was undoubtedly the IPO of Chinese e-commerce giant Alibaba.com. That Alibaba now has a market capitalisation edging closer to $200 billion and annual revenues that are reportedly more than that of Amazon and E-bay combined, underscored the enormous potential of e-commerce in country like India with similar market size and an even more favourable demographic.

Evolution of e-commerce and e-tail in India
E-tail or online retail is a sub-set of e-commerce; while the former connotes online shopping of products, e-commerce refers to all Internet-based commercial transactions. The speakers also referred to “Buyology” or the factors that drive people to buy online, which include:

- Greater ease and convenience, including the avoidance of traffic hassles
- Purchase of wide variety of products, including day-to-day use stuff
- Increase in business travel & varying work timings
- Flexibility of price comparison
- Better pricing with daily deals, coupons, etc.

The speakers emphasised the role of telecom providers MTNL and BSNL for providing the backbone Internet infrastructure that enables reliable and secure e-commerce. Likewise, the efforts of Indian Railway (IRCTC) & Income Tax were acknowledged for getting the entire country used to making online transactions.

Having said that, the vast majority of Indian shoppers still fall into the category of “ROPO” (i.e. Research Online, Purchase Offline) buyers. This segment presents a huge opportunity for both online retailers, who try to entice and convert such shoppers from mere ‘window shoppers’ into actual buyers, and traditional brick-and-mortar shopping outlets. The large base of ROPO customers also points to the importance of online marketing and visibility for all retailers.

Key enablers to online shopping in India

India is a peculiar market that requires e-retailers to continuously tailor their offering to penetrate and service the vast untapped base of online shoppers. These retailers have adapted magnificently in almost every aspect – from merchandising to fulfilment – and the results are now beginning to show. In 2012, e-commerce and e-tail turnover touched $10 billion and $0.6 billion respectively. This figure is projected to hit $100 billion and $76 billion respectively by 2021!

Some of the enabling factors and responses by retailers are listed below.

Tapping the booming penetration of smart phones
: India may be a market where ‘m-commerce’ might be more in vogue than ‘e-commerce’ as one of the key factors that will drive web-based purchases is the high penetration of mobile phones, especially low-cost smart phones. Not surprisingly, almost all the major players provide mobile apps to cater to this burgeoning segment of users.

Price flexibility for a price-sensitive market
: The Indian shopper is extremely price-sensitive and e-retailers have responded to satisfy the consumer with considerable price flexibility in the form of discounts and offers including daily deals, happy hour sales, weekend sales, end-of-season sales, festive sales, etc.

Cash on delivery (COD): Online retailers in India were quick to recognise that one of the potential obstacles to online shopping in the country was the relatively low penetration of credit cards. The cash-on-delivery system where the payment is made in cash only when the goods are delivered has been a big contributor to the growing adoption of e-commerce in the country.

Improved speed of delivery
: Despite some inherent complexities and challenges with the transport and logistics infrastructure in India, e-retailers have steadily improved their time-to-delivery. Amazon India recently introduced “same day delivery” services; and this is becoming the norm.

Access to branded products in newer ‘inner’ markets
: There is a growing appetite for branded products across the country, including the smaller towns and rural markets. E-commerce is filling in this demand as being present in these markets may not make commercial sense for traditional brick-and-mortar retailers.

Challenges to e-commerce adoption
Despite the boom in online shopping witnessed in the last couple of years, challenges to even more widespread adoption persist. Some of the barriers to adoption are:

- Inability to touch the product
- Limitations in handling faulty goods – “returns policies” will require further evolution
- Unwillingness to post personal or financial information online
- Inability to bargain

Sreeraman concluded the event by emphasising the need for e-retailers/ prospective online retailers to differentiate themselves. According to him, selling clothing or shoes online may not work. However, considering the trajectory followed by Indian e-retailers, who are adopting a very similar path to that adopted in the US, we shouldn’t be surprised to see the equivalent of a Zappos in India, selling crores worth of Kolhapuri chappals!

-By Sandip Motiwale
Sandip is the Head of Project Operations at On Target. He attended the “Deep Dive into e-commerce” event.

On Target provides online marketing services including organic search engine optimisation and paid search marketing for e-commerce sites in India. If you are interested in finding out how we can help maximise online sales through your web storefront, call us on (022) 64506796 or submit your inquiry here.

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