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:
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:
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.
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