E-Commerce: CAUTION! SPEED BREAKER AHEAD

In the past year, India saw heavy investments in e-businesses. However, there does seem to be a change in that particular trend; more so over the last couple of weeks. There has been a lot of talk of e-businesses shutting down and being acquired, leading to uneasiness in the industry. So the debatable question here is - Is the boom in e-business over? Are we giving the e-business baby enough time to grow?“No”, I say. The industry is in a very nascent stage, so we cannot declare it dead. We are expecting it to run even before it has started to crawl or walk.

There is no doubt that running an e-commerce portal in developing countries like India is a challenging task; the challenges being - a lot of companies jumping into this segment (leading to price wars), having to bear high customer acquisition costs, meeting with customers’ expectations and providing exceptional customer services, overcoming logistic roadblocks, and improving cash on delivery facilities, to name a few.

The industry is still evolving; it would be incorrect to term its current stage as the consolidation stage. I would say that we are currently seeing some speed breakers, so we need to slow down, allow time for corrections, and then increase the speed again, after repositioning to gain efficiencies. While doing so, companies should ensure that they have enough capital reserves as shock absorbers and that their capital supply at any point in time should not dry out.

Just like in the West, e-commerce has gone through all the stages of the business cycle, but is still relatively new for the Indian market. I have worked closely with many renowned UK and US e-business clients for more than a decade. I have closely witnessed the business cycle and have seen clients failing and succeeding in their projects, and I have found that the mantra for the survival of e-business remains the same all over the globe, “Getting your basics right.

India is a fast growing Internet economy and investors are keeping a close eye on good quality Indian e-businesses. The current Indian retail market size is around USD 550 billion, of which the e-commerce market accounts for approximately USD 1 billion. Keeping a conservative approach of a compounded annual growth rate of 10% for the next decade or so, the Indian retail market has the potential to touch USD 1.5 Trillion by 2025. The e-commerce pie in the total retail industry can increase, and will eventually be at par with the US and China e-commerce pie, to approximate 10% of the total by 2025 from its current proportion of 0.2%. This means that Indian e-commerce has the potential of eventually becoming a USD 150 billion market by 2025. This is undoubtedly going to create a potential market for customers, entrepreneurs and investors, where everyone will get an equal share of success in their respective fields. And that will definitely happen if we take a calculative and planned approach by “Keeping the Operating Costs as low as possible (i.e. below 20-25%).”

In my opinion, some of the key points that should be focused on are:

• Blend of Inventory based model and market place model

Ensuring smooth supply-chain management tops the list, as this is one of the major factors linked to the growth of the e-commerce business. For that matter, we can opt for the best of both the models; have a panel of suppliers who can stock goods on our behalf and at the same time identify and stock fast moving goods. Therefore, one doesn’t need to block huge funds in stocks and instead, can invest the same in several other areas which need immediate and urgent attention.

• Reduction in customer acquisition cost

We should focus on cost-effective and efficient marketing rather than blindly following the crowd and so, choosing the efficient mode of marketing is definitely one of them. The initial round of funding should be wisely used to grow the business, bring value for the customers and get repeat sales from the customers, thereby creating a profitable and scalable e-business model. Funds should not be burnt on high customer acquisition costs.

Coming from an e-business background, I will always advice startups to opt for low cost, measurable and organized online advertising rather than spending money on electronic or print advertisements, where it is difficult to quantify the number of people who actually subscribe to your service after viewing the advertisements. For instance, Airtel’s latest ad, “har ek friend zaroori” is a big hit; however, nobody can ever define its conversion. Further, it is not possible to establish if it hit the right audience or not. For example, an insurance advertisement watched by my 2 year old daughter is rather fruitless.

Online advertisements are comparatively efficient and low-cost; like Search, Google ad-words, FB promotion, wherein you get maximum visibility in the form of Text links and Banners. One can count the exact number of people viewing the advertisement, the number of clicks, the number of conversions into registered users and the number of purchases through that particular media. The beauty about it is that one just has to pay for the number of clicks and not for the people viewing the advertisement. So it is more performance based, where one can calculate the exact ROI.

• Automating Technology

For it to become a profitable venture, one has to automate the process; seamlessly integrated technology should be in place for customer relationships, improvised supply chain management, up-to-date accounting and there must be a focus on accurate and fast results by reducing manual work.

• Choosing a small & efficient team

I have noticed that a few of the current e-businesses have a target to hire highly paid staff, who according to them, bring a lot of worth to their business and assist in fund raising. Though the right team is essential for any business, it is always an egg and a chick story. However, I believe that instead of building an expensive staff, businesses should first get their strategies right to generate revenue with a small and efficient team.

• Create value for customers

One golden rule which holds good for all businesses is that “Customer is King”. No doubt, businesses can't ignore this fact, however, creating value for the customers and satisfying them does not mean that you start offering heavy discounts, freebies, enter into price wars and end up with a mismatch in your revenue and cost. Instead you should work aggressively on selection, product range, designs, and creating some differentiation factors, so as to ensure loyal and returning customers. Though we should walk an extra mile for our customers, we have to be sure that we are not unnecessarily getting into a situation where it becomes difficult for businesses to survive.

On a closing note, I would say that e-businesses will surely stay, survive and bloom in India and become a USD 150 billion market by 2025. This can happen by getting your basics right and making every penny count.

About the author:

Meenakshi Khurana is the founder & Managing Partner at Craffts.com. Prior to Craffts.com, Meenakshi has worked with various international and domestic clients in multiple industry verticals, like education, finance, online retail and entertainment.