Increase in the intensity of competition will bring out the best
October 10, 2016
Every decade or so, a new career path emerges which promises to be the next big thing in terms of pay, stability and job satisfaction. If in the 1990's the rage was all about entering aviation, the 2000's saw the IT sector booming and now the 2010's have brought in the era of e-commerce. All three industries, in each decade, have displayed a mad rush to hire the best talent by luring them with high salaries and the promise of fast growth. With time, as the frenetic rate of growth reduces, these jobs become like any other for most - monotonous, hierarchical and unexciting. As the market eventually matures and competition narrows down to a few big names, focus narrows down to establishing dominance over one another rather than killing out emerging competition. This is the phase that is slowly entering into the e-commerce industry with 3 major players – Flipkart, Amazon and Snapdeal fiercely battling each other to capture the Indian market.
So what is the state of e-commerce in India? Who is well-equipped to outshine the others? What is each one doing right and what are the areas that need to be worked upon? A brief look at each of the big three to understand their major strengths and weaknesses can provide some insight to these questions.
The poster boy of Indian e-commerce started the revolution of online shopping in India. In eight years, Flipkart has seen its growth rise exponentially by introducing more and more people to the benefits on shopping online.
"We were not thinking about numbers then, but we knew something big can be built out of e-commerce" - Binny Bansal
1. Market presence: The biggest strength of Flipkart is its sheer presence in the market. It is the first name that comes to mind for most people when they want to shop online. Although its dominance has taken a bit of a hit recently with Amazon snapping at its heels, Flipkart continues to lead Indian e-commerce for now.
2. In-house logistics: The availability of a dedicated logistics network in E-kart provides a great deal of control over order speeds and serviceability. Currently about 80% of orders are fulfilled through E-kart, which will allow Flipkart to keep delivery costs to a minimum. Extending services to third parties will also allow E-kart to expand on their business and at the same time provide an additional, significant source of revenue for the company.
1. Investor dependence: Flipkart is still completely dependent on the financial backing of investors for operating the company. In eight years, these investors are yet to see any return on their investments. During times of a tough financial climate, Flipkart may find it difficult to raise funds at their preferred valuations and this might force them to make decisions based on investor sentiments rather than business interests.
2. Losing customer-centric focus: Flipkart has lost about 4-5% of its market share to Amazon in the last one year as per a recent report. In the last one year, the company has been focussing on generating more sales through product diversification and seller on-boarding rather than on improving customer satisfaction. This has resulted in a lot of loyal customers jumping ship and shopping from other sites. Returning back to the basics and working on customer experience will be key to Flipkart regaining its market share and retaining its position at the top of the e-commerce food chain.
The fastest growing e-commerce company in India may have joined the e-commerce bandwagon late but that has not stopped them from picking up significant market share in the last three years.
"Your brand is what other people say about you when you're not in the room" - Jeff Bezos
1. Experience: Amazon has over two decades of experience in e-commerce through which they have managed to develop and optimize their systems and infrastructure to adapt with the constantly changing climate of e-commerce. This has been one of the main reasons for their rapid expansion within India in such a short period of time.
2. Deep pockets: Amazon India has virtually unlimited cash reserves thanks to its parent company and it is safe to say that if they fail to capture the Indian market, financial constraints will not be a contributing factor.
1. Comparatively low focus on app: Mobile shopping is going to be the future of online retail. Although Flipkart may have tried to force it too early on to their customers, their intentions were correct as all indicators point toward mobile shopping dominating online retail in the future. All things considered Amazon’s app is still decent, yet their focus is primarily on the desktop experience with their app acting as a support or add-on to their website. With cheaper smartphones being released by the bundle in India, ever growing internet penetration into rural areas and continuously improving standards of living it will only be a matter of time before mobile shopping becomes the dominant means of shopping online in India.
2. Over diversification of products: Amazon is the largest online market place in India with over 55 million products listed on its platform, ranging from conventional consumer electronics and clothing to more unconventional things like preserved reptiles and cow dung cakes . Although product diversification is good, addition of products willy-nilly which are unlikely to have much demand in the market and only cost more to package plus ship may not be the best way to expand upon business.
Rounding up the big three is Snapdeal, who initially started hot on the heels of Flipkart has now found itself knocked into third position (in terms of market share) thanks to Amazon.
"Product, product, product. That's what it comes down to. You build a great one, and then you keep improving on it." - Rohit Bansal
1. Third party service integrations: Compared to Flipkart and Amazon, Snapdeal offers more third party services to its customers with options of mobile recharging (Freecharge), bus ticket booking (Redbus) and even online food ordering (Zomato). This helps Snapdeal diversify its revenue streams and obtain additional sources of revenue through means not explored by the other e-commerce majors.
2. Freecharge: The acquisition of Freecharge has allowed Snapdeal to be ahead of the curve in the online wallet sector as compared to Flipkart and Amazon. On this front, the only real competition for Snapdeal is Paytm. The accessibility of Freecharge to Snapdeal’s huge user base will enable Freecharge to provide its services to more people and thereby expand on Snapdeal’s overall business. As mobile recharges and bill payments are a recurring need for most consumers, a steady and predictable source of revenue is guaranteed as long as Freecharge can hold onto its customers.
1. Investor dependence: Like Flipkart, the need for investments every so often might hamper Snapdeal’s growth rate as a result of investor desire to drive towards profitability. Hence the need of the hour is to build a viable business model which would convince investors to continue pumping in money at preferred valuations or generate alternate sources of revenue which could help sustain the main business.
2. Losing identity: Before the entry of Amazon, Snapdeal was battling head-on with Flipkart to claim the top spot in the market. However in the last year or so, Snapdeal has slowly been relegated to third place and has started shifting its focus in retaining existing customers. With Amazon recently surpassing Snapdeal in terms of market share and its drastically reduced growth rate this year, it remains to be seen whether Snapdeal will be able to fight its way back into the fold or else slowly fade away into the sunset.
Of the three, Amazon looks to be growing the fastest without a doubt. In the last one year, they have captured market share at the expense of both Flipkart and Snapdeal. However Flipkart still maintains a huge lead and it will take a great deal of work and innovation by Amazon before they can catch up with them. Flipkart on its part will not go down easy and are beginning to correct some of the mistakes they made over the past year in an attempt to bring back customers. Although it is too early to predict, it looks as though a showdown between Flipkart and Amazon for total market control will eventually take place.
There is no denying that online retail constitutes only a minuscule portion of the total retail sector in India and that the opportunities for growth are huge. With online retail expected to hit the $ 1 trillion mark by 2020, it's not surprising that there are so many startups popping all over the place attempting to gain a portion of this pie.
Flipkart, Amazon and Snapdeal have established themselves to be trustworthy brands to purchase from amongst a majority of the frequent online shoppers. The only major differentiator between the three of them is in the pricing of their products which more often than not determines from whom the customer eventually buys from. The discounting model cannot continue on forever.
In order to ensure customer retention and drive towards sustainability these companies will have to focus on other aspects such as:
• Exclusive offerings: One way to ensure the entire market buys from you is exclusivity. Extensive analysis will need to be conducted on the market needs with companies identifying products that will be in high demand. Closing an exclusive deal will allow these company to sell at higher prices and avoid discounts.
• Pushing private labels: The biggest boost to brand value and sales margins will be if a company can ensure that their own private labels are in demand in the market. This will allow the company to dictate product costs, ensure product exclusivity and enable sale at profit. Flipkart has already tried this out with the launch of in-house brands such as Flippd, Citron and Digiflip. Amazon has also done this with success through the release of their own line of e-book readers, the Kindle.
• Business diversification: More critical for Flipkart and Snapdeal rather than Amazon, diversifying the business into more profitable avenues is essential as it will allow these companies to move towards self-sustainability while keeping dependence on investors at bay. Flipkart is already doing this through their ads and logistics platforms while Snapdeal is providing a range of third party services to customers.
• Loyalty programs: Almost every big brand brick and mortar store offers loyalty programs to their customers in the form of payback points and discounts. This provides incentive for the customer to return for future purchases. A similar focus should now be made in e-commerce by pushing such schemes through respective sellers so as to increase the rate of repeat purchases.
• Taking bold risks: Flipkart’s cash on delivery (COD) option was the one of the prime reasons for the sudden boom in Indian e-commerce. Make no mistake, Flipkart was not the first company to sell products online. Before Flipkart, there existed e-commerce sites like rediffshopping.com who sold online but did not offer COD. Flipkart brought in that flexibility for the buyer which resulted in the sudden boost in online shopping. Right now we are at an impasse. Three companies are fighting for supremacy with mostly similar offerings. What apart from a lower price can instigate a consumer to select Flipkart, Amazon or Snapdeal? New, revolutionary, game-changing ideas are the need of the hour if someone is to dominate again. Just like the COD approach, another idea which can capture the mind-set of the Indian consumer is required from one of these three. Flipkart’s app only strategy may have misfired but the mind-set was correct. Taking bold risks is the only way to ensure you’re not following anybody else’s footsteps. If you strike, you strike gold. If you fail, well there’s always the next idea.
So who will end up dominating Indian e-commerce? Is there room for only one at the top? Or will the spoils be shared equally? Whatever happens, one thing is for sure. The ultimate winner will be the Indian consumer as these three do their best into wooing customers to shop from them.
October 10, 2016
October 10, 2016