LOCAL STRATEGY FOR INDIAN ECOMMERCE COMPANIES

In my previous post I mentioned the fact that Indian ecommerce companies need to cross the chasm and start attracting early majority users to build a sustainable growth path. For attracting this user base Indian ecommerce company need to devise a strategy which is an amalgamation of 3 different strategies - mobile, social, and local. In this post we will focus on formulating an effective local strategy for Indian ecommerce companies.

Before delving further it is worthwhile to define local strategy and understand why it is important. Local strategy for an ecommerce company is building successful and effective partnership with traditional small and medium retailers and integrating their inventory into the site and in the process creating a win-win situation for both parties. Long before ecommerce, small and medium sized retailers have built successful offline business catering to the need of customers in their locality. The advent of ecommerce companies have brought better pricing and discounts  and convenience of shopping thus driving more people to buy online. But to sustain a hyper growth pace ecommerce companies need to develop a more scalable model. Traditional retailers on the other hand need to build their presence online or face the threat of perishing. There is lot of synergy between traditional retailers and ecommerce companies and instead of competing both can compliment each other through a meaningful union. The benefits to ecommerce companies will be better product selection, attractive pricing (owing to increased competition and discounts), and better services (by connecting buyers to nearest retailer). Traditional retailers will gain access to the online channel thus increasing their reach beyond the boundaries of their own locality.

Let us analyze how the traditional retailers in India fare with regard to their online presence. There are roughly 47 mn small and medium businesses in India. 95% of these are in unorganized sector and 5% in organized sector. Dividing these businesses by category: 60% - Food & Grocery; 10% - Clothing and Apparel; 6.5% - Electronics; 3.5% - Furniture; 4% - Beauty and Wellness; 16% - Others. Of these businesses only 1 % is online. Also only 5% of top 1000 retail businesses in India are online compared to 85% in US. This indicates that there is tremendous opportunity to increase the penetration of ecommerce in the small and medium business segment in India where the Indian ecommerce companies can play a very vital role.

Retailers Dilemma

Increasingly more and more Indians are researching product online before buying them in store. A report by Boston Consulting Group (Titled: Capitalizing on India's "Digitally Influenced" Consumers from Buzz to Bucks) says that about 40% of Indian online users research product online before buying them in store. This report also says that 37% of online Indian prefer to buy online owing to convenience and 30% prefer to buy online owing to discounts. The behavior of the Indian consumers, especially the ones who are online (11% of population) is changing rapidly - they search about product online through multiple devices; seek advice and get influenced about purchase decisions by their social network; provide real time feedback about product and companies in social networking and product review sites. All these have serious implication for traditional retailers who now are forced to: build their visibility online, and manage their reputation online. The traditional retailers suddenly need to evolve to cope with this changing consumer behavior but they don't have the know how or wherewithal. This is where ecommerce companies can step up to their rescue.


Online Marketplace - A Scalabale Ecommerce Model

There are 4 factors that drive the success of an ecommerce company and help build a loyal and engaged customer base - Convenience, Trust, Selection, and Value. Convenience is all about researching, comparing, finalizing and purchasing from buyer's desktop. Trust is receiving the item timely, undamaged and as described in the site. Trust is also about the ease of getting the refunds in case the purchase goes off track. Selection is the number and range of choices that a buyer can have while considering a product. Value is about attractive pricing and discounts when buying online.


An ecommerce sites can follow one of the two primary business models to build a successful business - Retailer Model , Marketplace model. In an retailer model the ecommerce company is behaving like a online retailers and essentially competing with the retailers. By adopting this model the ecommerce site builds a great buyer experience, convenience, and trust. But they take a beating in terms of selection and also scaling up the business. In a market place the ecommerce companies are essentially facilitating the traditional retailers to build their online presence. In turn they benefit by getting a wider range of products from these retailers at competitive price and not have to worry about managing the inventory. An online marketplace is a scalable ecommerce model but has some inherent challenges that needs to be comprehended before going down this path. While a marketplace model helps in building selection and value it creates a large debt in terms of convenience and trust primarily because post transaction the shipment of the product and also the quality of the product is owned by the seller and not the company itself. 

The advantages and disadvantages of both the ecommerce models and the essentials of managing the challenges of online marketplace is captured in the blog "Dissection of Ecommerce Business Models"



Ecommerce Synergy with Retailers

Ecommerce companies spend huge amount of money and effort to build inorganic and organic traffic. Many of them are also working on improving the mobile experience of their sites along with integration to social media sites. Thus the ecommerce companies are best suited to provide a platform for retailers to manage their online presence. Enumerated below are ways by which ecommerce sites can help traditional retailers:

• Inventory Management - Most retailers use some point of sale system (e.g go frugal, breakaway vision, pace, showman etc) to mange their sales and inventory process. Ecommerce companies can build simple and easy to interface with these POS and help on board their inventory with minimal friction. The simplicity of the on boarding process and the pricing structure plays a significant role in adoption of ecommerce by small retailers.
• Transaction Platform - Retailers can build their own website and start selling online. In that case they have to build a payment and checkout mechanism online. This is an overkill for small retailers who now have to manage this transaction platform. Integrating their inventory with a ecommerce site provides them with a transactional platform without additional effort.
• Shipping Service - Most retailers who wish to sell online will need a shipping and courier service. ecommerce companies can help negotiate a pricing discounts with courier companies based on the volume of sales clocked by them. This partnership built at an ecommerce site level can now be leveraged by all small retailers for their individual sales.
• Buyer Traffic - Retailers don't have the expertise to manage a website and attract traffic to their online store. ecommerce companies spend huge amount of money and effort to build traffic inorganically and organically. They can surface the retailers inventory to this traffic they are building. In turn having more retailer inventory helps ecommerce companies build their product selection and competitive pricing and thus attract more traffic.
• Online Identity - ecommerce companies can help small and medium retailers in building their online stores and micro sites. This will provide them with an online identity using which they can differentiate themselves from competitors. Creating this online brand and building on it will help manage retailers manage their USP and reputation online.
• Customer Support - Anyone who is selling online will need to provide some form of customer support to address the concern and issues of buyers. Small retailers cannot afford to build the customer support infrastructure. ecommerce companies, by virtue of their scale, can build a customer support team which can cover all the myriad number of sellers on the site.

Ecommerce - Retailer Engagement Model

One of the approach that ecommerce companies can adopt to build a scalable and successful business is by adopting an online marketplace model. Having chosen this path they still need to define the partnership model with the retailers. There are four ways by which ecommerce companies can start engaging with the retailers:

• Online Storefront plus local search - This is the classified model in which the ecommerce sites help retailers open an online storefront and help surface their inventory in search. This is a model where ecommerce site help retailers attract footfalls into their store through the online channels. This kind of model is very suitable for high value products (Automobiles or Real estate) or services
• Buy online pick up in store - This is a transactional model suitable for large chain retailers. The buyer finds the product online and pays for it online and then goes on to pick it from the nearest store of the seller thus saving time on shipping.
• Local Delivery - This is a transactional model where the ecommerce site takes the responsibility for collecting the items from the seller and shipping it to the buyer. The way this works is the seller ships the item to designated warehouse after listing the item. If the item gets sold then the ecommerce company takes care of parcel and shipment to the buyer.
• Fullfillment by Local Retailers - This is a transactional model where the seller takes care of shipping the item in a timely manner to the buyer. The site merely monitors for any anomaly in time of delivery or quality of delivery.

MOBILE STRATEGY FOR INDIAN ECOMMERCE COMPANIES

In my previous post I emphasized that Indian ecommerce companies need to cross the chasm and start attracting early majority users to build a sustainable growth path. For attracting this user base Indian ecommerce companies need to devise a strategy that is amalgamation of 3 different strategies - mobile, social, and local. In this post we will focus on formulating an effective mobile strategy for Indian ecommerce companies.

A cohesive and focused mobile strategy is important for ecommerce companies across the world but very critical for Indian ecommerce companies since majority of Indians access the internet (and thus ecommerce sites) through a mobile device. The mobile usage scenario in India is underscored by heterogeneous trends and patterns which are very different from other developed economies. It is also worthwhile to note that most of the ecommerce companies in India, while building a mobile experience, would have to deal with concept selling of "online purchase". Hence a single straight-line strategy may not be efficacious but may require superimposition of multiple diverse strategies. Some of the foundation pillars on which a great mobile commerce experience can be built are:

Prioritize Mobile Web over App 

About 49% of phones in India are internet enabled phone of which about 33% doesn't have an internet connection, 13% have internet connection but on a feature phone and 3% have internet connection on a smart phone. Also while the smart phone internet connections are on 3G and wifi, the feature phone internet connections are mostly on 2G/GPRS connection. So most of the new customers of the ecommerce site are likely to access the site on a feature phone running on a GPRS connection. Ergo it makes sense to start with the mobile web experience rather than a mobile app. 

An even better strategy is to have a layered waterfall approach, with SMS based experience at top, targeted to the broad mass and first time users, and aiming to drive traffic to mobile web (for featured enable phone). The SMS based experience can focus on supporting search, basic product information, checkout and ultimately leading people to the mobile website. The mobile web experience can focus on creating simplified first time and repeat usage and should aim at driving up the app download (if the phone supports it). The app experience is for an highly engaged user and should be consistent with the mobile web experience and aim at driving up revenue for users.

Mobile Site Optimization

This is a very broad area but here are 3 aspects that ecommerce sites can focus on :

• Extending Web feature - All critical web features viz. registration, home page, search, product view page, cart, check out, ownership (my account) page should be available to an user on mobile web. Some of these flows need to be reevaluated E2E to optimize steps for mobile. All these pages also need to have mobile responsive design to cater to different mobile screen resolutions. Whenever the user hits the site URL from a mobile device they should be automatically redirected to the mobile web site. In case of the apps the the interaction designs of the platform (iOS, Android) also needs to be taken into account while building the experience.  
• Leveraging mobile phone features - There are many mobile specific features like 'click to call', 'click to message', 'click to map', 'location based service', and 'QR code linking to their URL' that can be exploited by ecommerce sites to increase traffic, engagement, and conversion
• Building new capabilities - In case of building a mobile app some new capabilities can be built to increase engagement and conversion. Some examples of these are: One touch call; Facilitating viral of product and services via email, Facebook, SMS and twitter; Inclusion of key business events inside the app and keeping customers informed on the go; Allowing customers multiple ways to contact site through phone, website, email, and direction to the location; Creating a fan wall for customers to leave feedback; Sending messages (push notifications) to customer using a content management system; Creating mobile coupons for customers by "Checking in" at the site; Creating QR enabled coupon for the customers to redeem at the site by scanning a specified QR code; Connecting customers to sites Facebook and Twitter page.

Traffic Acquisition 

Multiple research across the world show that people treat their mobile devices as an extension of self. This means any content rendered on mobile can have a very high conversion rate, if relevant, and be perceived intrusive and annoying, if irrelevant. "The Mobile Internet India Consumer India 2013" report produced by Mobile Marketing Association and Vserv.mobi say that Mobile internet users enjoy getting content and deals through mobile ads. According to this report user love mobile ads that help them - download mobile content (59%); Find a good deal on something (41%); Learn about a brand(35%); Locate something nearby (26%). Ecommerce sites leveraging this consumption behavior will drive higher engagement and recall of their brand. Ecommerce sites can also consider location based advertising for mobile users although this is still in a very nascent stage. There are 3 mobile ad network that ecommerce sites can consider for mobile advertising - Google, In mobi and Vserv. While Google and In mobi focuses on smart phone population and developed ecommerce markets, Vserv focuses on feature phones and emerging markets. A word of caution for Ecommerce sites planning to leverage mobile advertisements is to effectively plan and manage the post click experience of their advertisements. 

Mobile Payments

A key ingredient of a successful mobile strategy is solving the payment puzzle and integrating an effective mobile payment solution into the checkout flow. Since credit card/debit card penetration is very low in India the mobile payment solution should include a cash based solution in addition to credit card/debit card. There are many start up companies, banks and operators who are collaborating to build mobile payment solution that doesn't require user to enter credit card/debit card details at checkout and will also work on a low speed mobile connection. All this has led to increase in excitement about mobile payments and today roughly about 7 million transactions happen on mobile today with a value of USD 190mn roughly amounting to 3% of total electronic transactions. Indian ecommerce sites can partner with these players to increase adoption of online purchases and in return help deepen the penetration of these mobile payments solution. There are two categories of players active in the mobile payment space: 

• Mobile Banking (Interbank Mobile Payment Service) - There are lot of banks in India today who support a mobile payment transactions. These transactions are powered by the Interbank Mobile Payment Service created by National Payment Corporation of India. Currently this platform hosts about 59 banks and have so far issued 53.5 mn Mobile Money Identifier (MMID). In order to leverage this service the customer needs to have a bank account with a bank that supports this platform and have her bank account linked to the mobile number through registration for mobile banking service. 
• Mobile Wallet - While the Mobile Banking solutions caters only to the population with bank accounts, the Mobile wallet solutions addresses the need of the population with and without banking account. Users can load money into their wallet from the credit/debit card or by cash through select outlets. These solutions are offered by both operators and non operators. Some examples of operator based solution are: M-pesa, Airtel Money, Aircel. Some examples of non operators based solutions are: ngpay,OxiCash,ZipCash,ZakPay

NEXT WAVE OF GROWTH FOR ECOMMERCE IN INDIA

The ecommerce market in India pegged at USD 9.5 bn in 2012 is likely to touch USD 12.6 bn in 2013. Of this about 71% is travel ticketing while e-tailing comprises only 10% of the pie. Secondly, the Indian ecommerce industry has been growing at a CAGR of 34% when global ecommerce industry has been growing only at a CAGR of 13%. Thirdly, India boasts of having the 3rd largest internet population in the world only after US and China. Despite all this Indian ecommerce sales is only a fraction (0.1%) of the global ecommerce sales(about USD 1.2 tn in 2013). It may be worthwhile to understand the biggest hurdles and challenges faced by the ecommerce industry in India and what can be done to engender a higher growth and adoption of online buying among the Indian internet users.

Challenges

Despite increased government and media focus and availability of adequate investment in this sector the ecommerce players so far have not succeeded in stirring enough enthusiasm for online buying in India. Some primary reason for such lackluster performance of ecommerce in India are:

Low Penetration
Internet in India has penetrated to only 11% of population while the global average of internet reach is 34%. The total internet  active user base in India is about 74 mn of which about 38% of users are from Top 8 metros (Delhi, Mumbai,Chennai,Kolkata,Bangalore, Hyderabad,Ahmedabad & Pune) 12% from small metros (Patna, Cochin, Baroda, Lucknow, Ludhiana, Coimbatore, Jaipur, Indore, Surat, Nagpur, Vishakapatnam, Faridabad), and 29% from Non-metros (Guhwati, Bhubaneswar, Raipur, Chandigarh), 15% from small towns and about 6% from rural India. 

When these figures are read against the fact that 30 percent of indian population is urban and 70 percent is rural it becomes very evident that the greatest growth opportunity for ecommerce in India is from the 2nd and 3rd tier cities. Ecommerce players so far have not done a great job in understanding the needs and challenges of the population in these cities. There is also very low awareness and understanding of online purchase in these cities. 

Access  

There are about 164 mn internet connections in India of which about 143 mn are mobile based internet connections and 21 mn are non mobile internet connection. More than 50% of internet users access the internet through a mobile devices owing to slow penetration of fixed line internet connections in India. This means a vast majority of internet users in India will experience the internet first time from a mobile device rather than a PC. Currently most of the Indian ecommerce sites doesn't have a focussed mobile strategy to woo and engage with this growing user base.

 

Motivation
 

Indian internet users primarily access internet for social networking (25%), services (email, IM) (23%) and entertainment (11%) with very less motivation to buy online. It is important to study some of the growth drivers in other big ecommerce economies and understand which of them can be replicated in the indian context. In US, the number 1 internet and eccomerce economy, growth is driven by online deals, aggressive merchandising and discounting from flash sales, more online loyalty programs, increasing time spent online owing smartphones and tablets, and large online presence of traditional retailers. In China, the second largest internet population and ecommerce population, growth is driven by growing internet population, burgeoning middle class with growing trust on online shopping, government driven campaigns to promote consumerism, improved infrastructure, product selection and services offered by online sellers and retailers. In Japan, the third largest ecommerce economy, growth is driven by "stay at home" culture, value shopping and an efficient home delivery network. In western Europe, the fourth largest ecommerce economy, growth is driven by better logistics, trust on online buying, deeper penetration of smartphones and tablets, convenience, large online presence of retailers and competitive pricing. Thus higher online presence of traditional retailer, good online deals, deeper penetration of smartphone and tablets and higher degree of trust for online purchase seems to be the common theme driving ecommerce growth in most parts of the globe.

In India only 1 percent of the 47mn small businesses are present online which means there is very less competitive pricing and selection and convenience in the online channel. This combined with low awareness about online buying makes the online channel less attractive compared to the offline channel for large part of population.  Also the trust factor for online purchase is very low among Indian Internet Users. In order to achieve scale the ecommerce companies would have to focus getting more and more retailers online and also build more trust for online purchases.

Ecosystem
A big factor hindering growth of ecommerce in India is lack of proper ecosystem to facilitate online purchase. Data proves that ecommerce growth is spurred by higher adoption of electronic payments. India is predominantly a cash driven economy. The number of credit cards in India is 19 mn (with 7 mn active card users) and the number of debit cards is 350 mn. Indians use debit cards primarily for utility bills and credit cards for online purchases. With such low penetration of credit card and absence of popular payment gateway like PayPal most online buyers prefer Cash on Delivery. About 60% of online transaction are Cash on Delivery. Cash on Delivery is not a scalable and sustainable model from a ecommerce company point of view as it increases the collection effort and the risk borne by the seller significantly.


So far ecommerce players have not been able to solve this payment puzzle of including the vast majority of non banking Indian population and yet bringing down the overall risk exposure of sellers.





 
Infrastructure
There are roughly 154000 pin codes in India. DTDC the largest courier company in India can deliver only to 10000 of the pin codes. People in small towns and rural india (where approximately 70% of population reside) doesn't have access to buy online.  As growth of ecommerce is driven by efficiency of the delivery network this is a major opportunity for growth. Average delivery time for ecommerce companies in India is 2- 4 business days for non-metros and about 1-2 business days for Metros. 

This longer delivery time reduces the desirability to buy online. Also the lack of coverage excludes a vast majority of population from trying the online purchase model.


Crossing the Chasm

Ecommerce industry is at inflection point in India today. So far the growth is driven by the innovators and early adopters who have started using the online buying channel. However to maintain a sustainable growth, ecommerce companies need to cross the chasm and start attracting the early majority users. In order to do this they need to focus increasingly on the following three dimensions:

Mobile: As majority of Indian internet users are being added through mobile it is essential that Indian ecommerce site support all the critical web features on mobile and simplify and improve the mobile site experience significantly. Most mobile phones in India are feature phones with a 2G/GPRS connection and ergo it is imperative to have a Mobile Web led strategy  rather than Mobile App driven strategy. Also there has to be an increased emphasis on innovating on mobile payment solution as low penetration of online payment is the primary hindering factor for scaling online transactions. Additionaly, Indian ecommerce sites should seek new ways of converting the on deck users to off deck users.

Social: Indian internet users spends a disproportionately large amount of time on social networking. Indian internet users who spend time on the networking site are mostly youngsters who have a strong influence on the purchase decision of the family. It is imperative for Indian ecommerce sites to engage with these people through product offerings on social networking sites. Indian ecommerce sites can also use the social networking channel to listen to the opinions and needs of customers. Yet another way by which Indian ecommerce sites can leverage social media to increase adoption of online transactions, is by building features and mechanism to allow customers to engage their social network in the purchase decision.

Local: A primary reason for growth of ecommerce across the world is increase of online presence of traditional retailers. This leads to increased pricing competition and also more convenience for users. In India approximately 1 percent of the 47mn businesses are online which leaves a lot of opportunity for growth for Indian ecommerce sites. Most local retailers, who have built successful brick and mortar business, fundamentally lacks the understanding and capability to build a successful online business. The ecommerce sites can play a pivotal role in building online presence for these retailers - provide a platform to build the online identity of retailers and also on boarding their inventory online; help in branding of the retailers to online consumers; drive traffic to the online stores of retailers. 

I will focus on a more detailed approach for each of the above mentioned dimensions in subsequent posts.