DISSECTION OF ECOMMERCE BUSINESS MODELS

Fortunately eCommerce websites doesn't have to grapple with the physical limitations of shelf space or the finding a suitable location for their stores. However, they still need to engage in other facets of retail management viz price control, supply chain, operation cost, inventory management, distribution network, demand forecasting, traffic conversion, smooth checkout etc. The gamut of activities that an commerce website need to concentrate on is dictated by their business model. Two ecommerce models that have come of age and become widely prevalent - "Retailer Model" and "Marketplace Model". Delineated below is the medley of tasks that a website need to specialize (in accordance with their business model) in order to build a successful business.

Retailer Model (e.g Amazon, Flipkart) - Websites with this model stock their own inventory and build their in house logistics department to take care of shipping and delivery. Their primary focus is on lower price, larger selection, and greater convenience. This will attract more customers leading to more distribution channels and larger reach and eventually bringing in more sellers. The challenge with this model is profitability and scalability. These websites can create a valuable offering by being adept at the following:

• Building Product Categories - The supply chain and business nuances of each of the product categories vary significantly. Retailer websites need accurately predict demand patterns, understand consumer behavior and set up an efficient supply chain for the product category . So it is prudent to begin with one or two categories and then add new categories to the offering mix slowly. If there is a need to precipitate the development of a category then instead of creating a half baked solution it is advisable to buy or partner with other players who have synergy in supply chain and distribution of the particular product category. 
• Inventory Management -  A lot of capital is locked in warehouse and inventory management. In order to reduce overall cost it is necessary to segregate the fast moving items from the slow moving ones. Retailer websites can delegate long tail items to the third party sellers while stocking in house all fast moving inventory. Also to better align to changing demands, the inventory can be rotated higher number of times in a year.
• Supply Chain - A world class supply chain and distribution system helps abate the product prices and augment customer convenience. Retailer website should contrive to rally a network of suppliers who can deliver at low price. An effective strategy is to distribute warehouses in strategic locations to optimize delivery cost and time. In similar vein retailer websites can use suppliers to drop ship for low demand locations while using self delivery channels for high demand areas. 
• Cost Management - Customers want to buy online to get good deals. Retailer websites can build a big and loyal customer base by being cost leaders in each of the product category they support. This means in the short run retailer websites should be prepared to absorb price volatility from suppliers at the peril of incurring loss. The business objective should be to gain market share which will lead to high bargaining power with suppliers helping bring down cost. Some other tricks to knocked down cost is juxtaposing warehouses and suppliers and increasing price competition between suppliers.
• Data Mining - Data warehouse and data marts contains gold mine of data with respect to customer needs and behavior. Retailer websites should invest in data mining technology to segregate the fast and slow moving products and identify recurring customer problems. Some other ways by which data mining can be used is to forecast demand accurately and identification of areas to reduce cost
• Customer Service - A dissatisfied customer can imperil the brand image through negative word of mouth. Retailer websites can ameliorate trust by increasing the number of customer communication post transactions and automating it. It should be an easy process for buyers to reach out to customer support in cases of an issue and get replacement or refunds. It is also essential to closely monitor the behavior of suppliers who drop ship to customers directly.

Marketplace Model (e.g eBay,Olx, Quiker) - Websites with this model merely creates an online trading platform which is used by brick and mortar retailers to build their online presence. Inventory management and logistics operations are handled by the retailers themselves. Marketplace websites offer diversity of prices and offering but at the same time need to pay lot of attention to building trust. The challenge with this model is managing the bad buyer experience caused by seller post transactions. In order to succeed marketplace websites need to develop the following capabilities:

• User Verification and Fraud Detection -  The safety of the platform to a great extent is determined by the quality of people who trade on the platform. This means investment in developing  sound verification process and sophisticated fraud detection algorithms. Marketplace websites need to be very strict about verifying users at the time of registration. Post registration user activity should be closely monitor their activity and whoever displays bad behavior on the site should be suspended. It is also essential to block a bad user from returning to the site using another account. For this an account needs to be linked to a real world entity verified at the time of registration. 
• Seller Scoring - The propensity to commit fraud is higher on seller side then on buyer side.In order to maintain sanctity of transactions marketplace websites should treat differentially between good and bad seller behaviors. Sellers behavior is defined by quality of listings, handling time, quality of tracking provided on package, volume of sale made, and number of bad buyer experiences caused which should be periodically evaluated and rated. Better rated sellers can enjoy privileges like higher search ranking and discount on the  listing fee which will create aspirational value amongst sellers to exhibit good behavior on site.
• Shipping - Once the order is placed seller should act efficiently to fulfill the order, package the item and drop at courier. There on it is the efficiency of the courier service to deliver the package timely to the customer address.So the opportunity to reduce shipping time is at two levels -  reduce the handling time of seller,  and reduce the delivery time of courier service.  For the former seller can be closely monitored for their handling time and rated in accordance. For the later marketplace websites can intermediate the shipping service on behalf of the seller with a trusted partner carrier. A deeper integration with courier service will reduce the average delivery time and also improve tracking of the package.
• Payment - Buyer are exposed to significant risks from the period of making the payment to receiving the item. Marketplace websites can reduce this risk significantly by parking the money in an interim escrow account during this period and linking remittance to seller with the order shipping time. If the seller uses the shipping service intermediated by the site and provides a tracking number then money can be remitted to seller as soon as the package delivered notification is received from the carrier's system. In case the seller uses an outside service and doesn't provide a tracking number then is money is held back for a longer period which will cover for both regular shipping delays and also breathing time for buyer to file a complaint. 
• Returns - Since buyers purchases the item without seeing it they should given flexibility to return the item in cases it is not up to their expectations. Marketplace websites should encourage sellers to accept returns by providing higher scores to seller who accept returns as against those who don't. If the seller chooses to not accept a return then in the case of a "item not as described" complaint should be willing refund the amount plus return shipping cost (if item has to be returned). On a related note it is critical to closely monitor buyers who show a recurring pattern of returns and block them from further transacting on the site.
• Customer Support -  Marketplace websites need to arbitrage between buyers and sellers in case of an issue. This means that these websites should invest in a simple and transparent dispute management system and also a communication platform. The website should also strongly push both the parties to interact with each other using the communication platform. When a dispute arises the customer support can go through the communication log to pass the verdict in favor of the victim.

THE CHANGING FACE OF ECOMMERCE

Over the past 5 years eCommerce has grown at double the rate of retail sales to touch 1 trillion mark. However, if you consider the proportion of commerce over retail sales it is minuscule - only 8% in US, 10% in EU, 6% in china and 0.1% in India. The primary driver for explosive growth of eCommerce are:penetration of web-enabled mobile devices; and more and more brick and mortar stores opening online channels. As online shopping is becoming more and more widespread the strategy adopted by online players are constantly changing and becoming mature. Some of the new ways by which online players are adding value to shoppers are:

Overnight Shipping - As the penetration of eCommerce increases customers have started demanding faster delivery schedule. This is no longer a delight feature but a hygiene factor
Retail Like Experience - Shoppers are expecting sites to behave more like retailers - follow a retail promotion calendar, offer regular deals and discounts and advertise like retailers
Great Value - People prefer to shop online to get good deals. The expectation of customers is lower price for products, shipping discounts, and coupon & reward point that are easily discoverable
International Shopping - Online shoppers no longer want to be restricted to their resident country. Some online players facilitate shoppers to buy from across the world in a trusted way. Buyers are also given the option to shop in their local language and currency

Head Category vs Long Tail - Instead of spending efforts in building the niche and smaller product categories many eCommerce players are focusing on increasing their depth in head categories (e.g electronics, fashion, home and garden etc) where there is biggest bang for bucks

Personalization and Curation - Shoppers don't want to be overwhelmed with high content volumes. Many online players have started recommending products that are curated and personalized to the needs and taste of the buyer

Social Endorsement - In a social media age people are guided in their purchase decision either by friends and family or product experts or enthusiasts. A lot of online sites are increasingly leveraging the social graphs to drive conversions

Multi Platform Access - Technology advancement has changed the way people access internet and shop online. Today's consumer want to shop from anywhere - web browser, tablets at home, smart phones in the car. So online sites have started diversifying their attention from building a pure web only experience to multiple platform

Local Merchant Selection - Brick and Mortar merchants are slowly building their online presence to attract footfalls to their stores. Many eCommerce players have started leveraging this opportunity to on board inventory from local merchants and thereby building scalability, trust, convenience for their customer.  


The double digit growth clocked by eCommerce industry in the last 8 quarters is unlikely to abate in near future. Ecommerce is well poised to become the next frontier of globalization after industrialization, regional pacts among nations, and evolution of transportation and communication technology. The future growth of eCommerce will emanate from the following dimensions  

 Global Platform - The real power of a ecommerce site is it's global reach. Players who are able to tap this opportunity will see exponential growth in future. The scope here is in automatic converting the product description and price into the buyers language and currency; and providing a faster and low cost international shipping service. 

Local Inventory - Players can scale up their business quickly if they harness the local business network effectively. As online more and more brick and mortar stores are opening their online channel ecommerce players can intermingle the local inventory with national and international inventories. The scope here is real time on boarding of the merchants inventory and facilitating buyers to pick up in stores or order the delivery of the item through a valet service.

Mobile Devices - The mobile platform presents an unique challenge in terms of scarcity of real estate space. So when thinking about mobile flows players need to ruthlessly prioritize their features. At the same time mobile devices are more personal to users and this means it is great medium to push personalized offering. Also mobile devices can be leveraged to extract the location context of the user which can be used to improve product recommendations.

Social Media - The explosion of social media means that in future user will leverage their social networks in their purchase decisions. The opportunity here is two folds - enable buyers to share the items they are interested in with their friends and family; curate items that product experts and enthusiasts purchase or closely follow.

Digital Content - There is lot of opportunity in ownership, streaming and download of digital content. Products like books,music, movies and games are rapidly going digital. Players need to divert their attention from owning hardware devices to widening the selection of such content in digital mode. Today very few players dominate this space and there is significant scope to scale up the market by creating an eco system that accommodates pricing variation, re-sale, digital rights management.