E-Commerce Industry Analysis

ANALYSIS OF e - COMMERCE INDUSTRY THROUGH THE LENS OF REM

Introduction

E-commerce is the delivery of information, product/services or payments over tele-communication channels, computer networks or any other electronic mode of communication.

The E-commerce sector has seen unprecedented growth in 2014. The growth was driven by rapid technology adoption led by the increasing use of devices such as Smartphone and tablets, and access to the internet through broadband, 3G, etc, which led to an increased online consumer base. Furthermore, favored demographics and a growing internet user base helped aid this growth. In terms of highlights, the growth shown by homegrown players such as Flipkart and Snapdeal and the huge investor interest around these companies displayed the immense potential of the market. With the entry of E-commerce behemoths such as Amazon and Alibaba, the competition is expected to further intensify. Both these international players come with deep pockets and the patience to drive the Indian E-commerce market. Also, their strong domain knowledge and best practices from their international experience give them an additional edge. Additionally, these companies have been part of markets where they have seen the E-commerce market evolve and are aware of the challenges and strategies to address issues thereof. Indian companies realize this, and are therefore aiming to continue their focus on expanding sellers and selection on their platforms, innovating on multiple customer touch points, and providing seamless and rapid delivery services in order to compete with the international entities. Competition is expected to continue, with these E-commerce companies experimenting with different ways to attract customers and increase online traffic.

The Indian government’s ambitious Digital India project and the modernization of India Post will also affect the E-commerce sector. The Digital India project aims to offer a one-stop shop for government services that will have the mobile phone as the backbone of its delivery mechanism. The programme will give a strong boost to the E-commerce market as bringing the internet and broadband to remote corners of the country will give rise to an increase in trade and efficient warehousing and will also present a potentially huge market for goods to be sold. For India Post, the government is keen to develop its distribution channel and other E-commerce related services as a major revenue model going ahead, especially when India Post transacted business worth 280 crore INR in the cash-on-delivery (CoD) segment for firms such as Flipkart, Snapdeal and Amazon. Both these projects will have significant impact on increasing the reach of E-commerce players to generally non-serviceable areas, thereby boosting growth. India’s overall retail opportunity is substantial, and coupled with a demographic dividend (young population, rising standards of living and upwardly mobile middle class) and rising internet penetration; strong growth in E-commerce is expected. From an investment perspective, the market is a primarily minority stake market, with maximum traction in early-stage deals. Such early stage funding will help companies develop a strong foundation to start from.

Growth of e-commerce in India

Over the last two decades, rising internet and mobile phone penetration has changed the way we communicate and do business. E-commerce is relatively a novel concept. It is, at present, heavily leaning on the internet and mobile phone revolution to fundamentally alter the way businesses reach their customers. While in countries such as the US and China, e-commerce has taken significant strides to achieve sales of over 150 billion USD in revenue, the industry in India is, still at its infancy. However over the past few years, the sector has grown by almost 35% CAGR from 3.8 billion USD in 2009 to an estimated 12.6 billion USD in 20131.Industry studies by IAMA2 I indicate that online travel dominates the e-commerce industry with an estimated 70% of the market share. However, e-retail in both its forms; online retail and market place, has become the fastest-growing segment, increasing its share from 10% in 2009 to an estimated 18% in 20133. Calculations based on industry benchmarks estimate that the number of parcel check-outs in e-commerce portals exceeded 100 million in 2013. However, this share represents a miniscule proportion (less than 1%) of India’s total retail market, but is poised for continued growth in the coming years. If this robust growth continues over the next few years, the size of the e-retail industry is poised to be 10 to 20 billion USD by 2017-2020. This growth is expected to be led by increased consumer-led purchases in durables and electronics, apparels and accessories, besides traditional products such as books and audio-visuals.

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Value Proposition

• Low Prices – The products are made available lower / discounted prices when compared with that of Brick & Mortar Retailers.
• Convenience – People can do shopping from anywhere internet is available.
• Anytime – People can do shopping 24/7
•  Wide varieties of products are available at one place.
• Easier to compare and search products and offers
• Exclusive Products – Some products are available only online and some products are launched exclusively at specific online stores. For instance, Moto G mobile phone is launched exclusively in FilpKart.
• Customer Reviews of the Products – People can know the feedback from the existing customers before making a purchasing decision.
• Better and more information of the product – Specifications of the product is made available in a well structure manner. It’s easy to compare the specifications of the alternative products before making a purchasing decision.

SWOT Analysis

Strengths

• Scalable. E-commerce biggest strength is the boundary less access in other word no brick structure is mandatory to do business or no specific boundary is required. So the business can easily be scaled up to target the new segments and to introduce new products etc.
• Flexible Segmentation. The success of business depends on right choice of segmentation. Target market segment here in e commerce is flexible can be modified any time.
• Information Symmetry. “e” will always guarantee fast and accurate sharing of information among merchants and customers and enables prompt quick just in time reply.
• Faster buying Cycle. The buying is just a click away from the seller. No physical movement is required, no hunting of right product at right price is to done by the consumer this make the buying process faster

Weakness

• Challenges around reverse logistics management and third party logistics interactions

• Infrastructure not scalable to meet the growing traffic during big deals

• Long delivery timing. The task of Delivery is usually outsourced, who do not care about the timing of the seller. They provide their services as per their own convenience. Some time the delivery time may extend to days or weeks which one cannot wait for.

• Security. Security is a biggest challenge in to progress of e commerce. Customer always found themselves insecure especially about the integrity of the payment process.

• No Personal Touch. Products whose choice is merely depend on its physical condition of the product with need personal touch before selection are not suitable for e-commece business. As Online products cannot be touched, wear or sit on the products.

Opportunities

• Evolving customer segments and product portfolios
• Social Media has become more influential than traditional marketing
• M & A Opportunities – Firms can look for the opportunities for strategic partnership and M&As to compete in the market. eg – Acquisition of Myntra by Flipkart

Threats

• Payments and transactions - E-commerce companies may face issues around security and privacy breach and controlling fictitious transactions. Further, RBI restrictions for prepaid instruments or eWallets act as impediments. From a transactions perspective, cross-border tax and regulatory issues, and backend service tax and withholding tax can have serious implications.
• FDI Norms - Currently, India permits 100% FDI in B2B e-commerce activities but not in B2C companies. Players operating in the latter space have adopted the marketplace model, wherein they take order but which are filled by other domestic retailers. 

Segmentation and Targeting

Market segmentation and storytelling based on key demographic and lifestyle attributes (e.g. age, gender, location, interests) is at the heart of content marketing. Many online stores also have multiple real-time triggers in place responding to recent online activities of a customer. Integrated segmentation helps to establish the optimal balance among individual customer history, recent behavior, and market. A holistic understanding of customer behavior is essential to maximize online conversion. Similarly, it should adapt to customers’ changing schedules over time. Segmentation of both anonymous and registered users in a consistent fashion helps to capture valuable consumer impulses guiding registration, initial purchase, and loyalty decisions. Comparison of anonymous and registered users with similar visit behavior helps o detect which customers have a higher potential, and which characteristics are prominent signs of such potential. Customers with the highest visit frequency or the highest browsing diversity in terms of products may have the highest conversion potential compared to low-frequency visitors or loyal customers.