Monday, December 7, 2015

Rise of E commerce in India: It’s Characteristics and Challenges

The rapid growth of ecommerce 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.

Chief characteristics of the e-commerce market

 ‘     Cash-on-delivery 

                 India has been a vibrant cash economy where the consumer’s purchasing behaviour involves an initial overall inspection of the product from different perspectives and paying subsequently. Further, customers in India do not extend much trust on the transit facilities for the delivery of the products. This has resulted in ‘cash-on -delivery’ (COD) as a preferred payment option of majority of the Indian consumers buying online.
       Return process :   
                 Consumers in India expect the return process to be seamless and convenient. However, with an expectation of return of the items purchased online, online shoppers have made available the option to return the purchased goods at the behest of the retailer. Retailers have considered this option of return to develop trust and confidence which results in seamless subsequent purchases and positive word-of mouth support.

           Free and quick home delivery :

                 It is another characteristic of the ecommerce industry in India. E-retailers offer free delivery of the products within a promised timeline. Though this may be unsustainable in the long run but e-retailers have to offer the same convenience of free and quick shipping to compete with other retailers.

Challenges :

Though the e-commerce sector is growing exponentially in India, it faces several challenges like: customer mindset, high cash on delivery (CoD) based orders, reach ability, poor courier services and other policy-related issues.
       High competition 
        There are several players doing the same business in almost the same way. With intense competition the profitability is decreasing due to aggressive pricing strategies, heavy discounts and offers, free delivery, high commissions to affiliates and vendors during sale period to name a few.

·         Supply chains and logistics networks 
      With this benefit also comes the challenge of robust supply chains and logistics networks, which are not comparable and developed to global standards in India. The courier companies do not have nationwide delivery networks and also do not have the skills of handling commercial value goods. They also do not have the skills for handling CoD, recheck return parcels, and other complexities related to digital sale. This is forcing several e-tailers to establish their own delivery network across the country and might have to engage with multiple shipping methods using FedEx or DHL for the last mile delivery.

·         Payments 

       E-commerce companies have to offer a wide variety of payment options including CoD, credit and debit card, and internet banking, among others. 60-70% of the payments are made using the CoD option in India as customers fear to share information online and do not trust the website for secure payments. Moreover, the return percentage of orders in CoD is much higher compared to online payments. To counter these fears, e-tailers have started to provide facility of paying with Card on Delivery.

Growing power of e-Marketplaces:

The e-Marketplaces are growing significantly with the increase in the Internet penetration and Smartphone usage. Internet enabled mobiles are making shopping a unique experience for buyers. E-Marketplaces provide a technology platform for sellers to participate and a trusted environment to scale up rapidly, increase profit and are highly valued by the customers.
 The non-inventory led B2C model also allows the e-commerce players to provide attractive discounts and offers which are difficult for inventory led brick-and-mortar shops as well as for pure e-Tailers. According to Deloitte’s study [1] “Global Powers of Retailing 2015,” online marketplaces rather than pure inventory-led companies tend to serve as the primary e-commerce model in Asia. The high costs of holding inventory, poor logistics and supply chain challenges in India are shifting the inventory-led companies and new entrants to adopt marketplace model. Also, e-Marketplaces work well in India due to high fragmentation on supply side.

The rise of online sales in the developing markets is encouraging retailers to go online for global expansion. The e-retailers are becoming exclusive partners for different brands. e.g. The Chinese Smartphone manufacturer, Xiaomi, entered Indian market through Flip kart e-Marketplace that helped to reach a large customer base in a short time. Similarly, [2] One Plus teamed up with Amazon India for exclusive partnership.

The Way Ahead :

Less than a quarter of India's population has access to the Internet today, but the country's future in e-commerce appears promising.
Online shoppers are expected to increase from 20 million in 2013 to 40 million in 2016, as an additional  200 million Indians will access the Internet in the next  three years, with majority of them coming online through smartphones, indicates a new joint study by Assocham and Grant Thornton.

The e-commerce is one of the biggest things that have taken the Indian business by storm. It is creating an entire new economy, which has a huge potential and is fundamentally changing the way businesses are done. It has advantages for both buyers as well as sellers and this win-win situation is at the core of its phenomenal rise.

Rising incomes and a greater variety of goods and services that can be bought over the internet is making buying online more attractive and convenient for consumers all over the country.

1. Deloitte study on “Global Powers of Retailing 2015: Embracing innovation”. See: articles/global-powers-of-retailing.html

2. Xiaomi to go independent without Flipkart. See: