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Is Indian E-Commerce Digging Itself into a Hole?

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The whole Indian e-commerce industry in India best exemplifies the meaning of the phrase “digging itself into a hole”. In some other ways, it also typifies what we call “a zero sum game”, i.e. any which way you do the math, it just doesn’t add up – no one is the winner.

Now consider this – travel portals like Makemytrip, Yatra and many more provide a service very similar to on-line commerce. There are airlines and hotels, who are actually the service providers. Travel portals act like an aggregator who get all the service providers on one platform and thereby provide a tremendous level of convenience to the user. For certain products, like hotels, they may negotiate a bulk rate with the service provider in return for a certain number of nights committed and offer the cost benefits to the end consumer. It’s a win-win situation for everyone in the chain, the service provider, portal and the end consumer. And most importantly, they charge a convenience fee to the end consumer for the services that the portal offers.

It makes sense to pay that extra fee per booking; as for the end consumer, the convenience of being able to plan the whole trip with a few key strokes is unparalleled. It is important to note that Makemytrip does not pay from its pocket, or from investor money, to provide deep discounts AND convenience to the user.

Let’s look at another scenario of booking movie tickets via a site like Bookmyshow. Gone are the days where planning to watch a movie at a theatre was a herculean task which required someone to go and book in advance or buy the tickets on the spot (in black)! The portal offers great benefit to the consumer albeit at the cost of paying an additional convenience fee. Doesn’t matter if you buy from the aggregator site or go to a PVR site directly. If you want the convenience of online, be ready to pay for the commodity AND a convenience fee.

Fast forward to the current e-commerce portals….someone at sometime had a million dollar idea that to get my customers to shop online on my portal, I must pay them from my pocket instead of charging them any additional fee for the convenience I bring…

This is what I call a truly disruptive & breakthrough idea except that it defies logic.

Instead of building significant cost savings in the chain and passing the benefits to the consumer, you short-circuit and say “Hey, look, I am going to pay for your shopping. So please use my online portal”. Forget about cost savings, there are substantial overheads they incur to bring this new level of convenience, like COD, same day delivery, no-questions asked refund policy etc., but they obviously don’t want to charge the customer any convenience fee because they are getting a free ride on the back of a VC with deep pockets!

Now if you are going to tell me that the cash backs, deep discounts and freebies are a temporary phenomena done to build a customer loyalty until the volumes can be used to get better leverage from sellers, all of us know that “it ain’t working out.” They have already lost the customer loyalty because the on-line customer is not coming to them because of any product or service differentiation. The customer is there because they are being offered a “discounted” ride. If they stop offering it, someone else will and the customer will just move to the next upcoming portal offering deep discounts!

Talking about leveraging from sellers against volume business, the same seller is selling on ten different portals with same identity and also directly selling to the customer via his direct presence in a retail market. In a majority of the cases, this on-line seller is a trader and not the original manufacturer. So they have a marginal profit band to play within, from which they have to manage their high street rentals, other shop expenses and sales staff salaries. How much can you leverage from them against volume business? Why won’t he start selling more on the next “newbie” portal offering deep discounts to the buyer from VC money?

I hope the readers recognize that in the marketplace model, to leverage price against volume is simple vaporware talk, like using GMV to measure the amount of business the portal might be doing.

Now, fast forward to the hyperlocal ventures which take this ‘zero sum ’ game to the next level. Here is a business case based on the assumption that consumers don’t even want to step-out to buy products from the shops in the vicinity. So build a catalogue for them, allow them to shop online and deliver the product from a shop which actually might be a stone’s throw away from the buyer.

In case the consumer is really not looking for this “unwarranted convenience”, let’s throw in deep discounts from the investor money, to make it pseudo-convenient and possibly develop a habit.

Look my friend, shopping in the markets is the only source of entertainment for a majority of the Indian families (leaving apart the dual income no kids cases in the tech sector). People want to step out and explore options in the local market and then make a purchase, face-to-face, with a trusted retailer. I don’t think they are looking for this additional hyperlocal convenience and yes, they may use your portal temporarily till you offer them deep discounts but nothing beyond…When you stop offering discounts because you emptied the investor kitty, they will move to the next funded kid on the block offering discounts…and when all this ends, they will go back to the retailer as he will always offer a better price than on-line hyperlocal given that he has no overheads of on-line business.

The retailer will simply keep a delivery boy who will get out on a two-wheeler; deliver the product to the buyer, without going into the hassles of an on-line transaction.

Am I correct in saying that the Indian online ecommerce industry, hyperlocal or not, is digging itself into a hole of a zero sum game?

They have to move out of this discounting game and start charging a premium to the consumer for the convenience they bring.

Simple.

About the Author: Suresh Kabra is the Founder of PriceMap, a platform connects store owners to potential shoppers who are actively searching for a product on-line with a clear intent to buy.

"Is Indian E-Commerce Digging Itself into a Hole?", 4 out of 5 based on 14 ratings.
  1. Shriram says

    I read this article with deep interest, for two reasons. One for the title itself. And the second for the content. The author has a business model that connects offline retailers with the online community which is a great way to bring footfalls in to the store. I am going to sign up with PriceMap and explore how to get more customers to my offline store that I run.
    On the other hand, I fully agree that the customer will move on to the next kid in the block who offers discounts. This is reality. My wife uses Ola everyday to work. She ofcourse, uses only when there is a coupon code. Else, she moves to another operator who does. Or probably the good old auto. Same applies for the biggies Flipkart, Amazon and Snapdeal. And many others too.
    However, what I do not agree is that customers “do not” value their time and convenience. Of course they do. A typical middle class guy/girl works 10+ hours a day, 1-2 hours on commute and has a family. They would prefer someone to get their errands and chores done, especially for household and day today shopping, which is what Hyperlocal Ecommerce is all about. The “boy” or Chotu that you have referred has moved on – he doesn’t like to wear a banian and work under his shop owner. He has become a cabbie, a delivery boy or probably even a BPO employee. Kirana Store owners are facing the pressure from two ends – one is Organized Retailing is getting better and two, Ecommerce is picking up.
    I studied this interesting opportunity for half a year and have launched my own Hyperlocal venture http://www.OyeThere.com. We do not provide outright discounts. We pass on the product from the shop to the consumer and help them save time and money. We do not carry inventory. we would like to help the Kiranas with incremental business from existing and future customers.
    There are multiple models being created. Some will work well. Some will remain. Some will fail.
    Time will tell. Watch this space.

    1. Suresh Kabra says

      Shriram,
      I agree with your assessment that only time will tell which models succeed. Also, i agree that people value their time and money. However, shopping is also biggest reason for outing and “touch & feel” of the product goes a long way in purchase decision, even if you buying a fully branded product. So while hyperlocal may work for household consumables, like buying a lux soap, a sirf or a standard packaging of oil, where quality is driven by brand and buyer is aware of what to expect, it will be challenging for other categories.

      1. Shriram says

        Suresh, Hyperlocal is mainly meant for daily use products. I do not see people buying Levis Denims or an iPhone through my site and I don’t intend to list those products as well. Hope that clarifies and validates my business model.

  2. Sreekanth Yelicherla says

    The author is clearly biased; May be because he is trying to bring offline retail using “online” model. If the author’s logic is correct then by this time eBay and Amazon would have shut shop! The below are the reasons why customers are buying online and will buy online.

    1. Even 20 nearby offline stores collectively can’t match even a single Flipkart.com collection for a particular category. Say example, I want to buy a deodorant. Go and search on your nearby stores including that of Reliance Fresh, Big Bazaar, More etc. spend hours of time, spend money on parking, bus/petrol/parking charges and then come back to home, listen to songs and browse flipkart.com!

    2. The offline stores are not going to provide any refund if the product is not liked by me. But the online stores does provide a look up period.

    3. The offline stores charge exorbitant prices. Customer care is meaningless here except their own margins.

    Finally, the author himself is using online model for his business yet blaming online models is surprising. Every model has advantages/disadvantages and that’s why everything has its own existence. To answer one of his questions about customers shopping if there are no discounts offered – customers are NOT fools to buy anything just because there are discounts! They are buying online because they find offline is expensive. The Ola, Flipkart,Amazon, Snapdeal won’t go anywhere even if they stop the discounts.

    1. Suresh Kabra says

      If I am biased for off-line, you seem to be clearly biased for on-line. That balances us !
      With Flipkart posting a loss of Rs 2000 Crores, only time will decide how long the VC funded party will last.

      1. Mud says

        Sorry, I’m curious to know – how did you know this? (the amount)? What’s your source?

        1. Saurabh says

          Check one of the above comments by Shriram for the links.

  3. Mud says

    Yes, I agree with what this article is saying.

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