Online firms look at value creation to seize markets

As vast segments of the taxi and furniture markets remain unorganised, differentiated offerings at scale remains the biggest hurdle

New, online companies in India — be it aggregators in the taxi industry or leading brands in furniture and home services — may be seen as riding a wave of disruption in traditionally fragmented markets, but bringing vast urorganised segments into the organised fold remains a tall ask. This demands creating a value proposition with products that cut across geographies and consumer preferences.

Sample this: The taxi market in India is estimated at about $15 billion, and the online segment is worth nearly $2 billion, according to RedSeer Consulting. The offline market is growing at about five per cent as against 60 per cent projected this year for the online market. Besides offering cheaper rides than offline taxis, one of the disruptive trends has been the carpooling feature launched by aggregators that has cut average fares and simultaneously improved driver earnings.

For Uber, when it entered in 2013, even as it saw a potential in connecting riders with the nearest cab with the help of its technology, limitations such as data speeds and low smartphone penetration added a layer of difficulty. While things have changed considerably since then, says a spokesperson, Uber focuses on ensuring its app works well not only on high-end smartphones but on all models including in areas with poor connectivity. “We invested in making driving for Uber an attractive opportunity for our driver partners, providing them relevant training and access to technology, all of which helped us to a large extent open up the market for our services.”

The online home and furniture segment is valued at around Rs 20,000 crore, while nearly 88-90 per cent of the overall market is unorganised, points out Ashish Shah, founder and chief operating officer, Pepperfry. Pepperfry has invested considerably towards consolidating the fragmented supply in the industry, and built an ecosystem of small manufacturers, skilled craftsmen, artisans, small and medium enterprises (SMEs) etc. across origin centres in the country to establish a strong supply network. “The home and furniture business is about variety. Our managed marketplace model is a platform for 1,000-plus SMEs and 900-plus leading brands in the segment,” says Shah.

Having set up its own distribution network to cover more than 500 cities and a carpenter network of about 250 personnel that help assemble the item once delivered, Pepperfry is aiming to expand its offline presence and set up the largest omni-channel business in home and furniture. “We are investing heavily in augmented reality and virtual reality to offer superior customer experiences in the coming months. We have set out a target of a Rs 5,000-crore turnover by 2020,” adds Shah.

In case of hyperlocal home services, pegged at $40-50 million gross transaction value, UrbanClap enjoys over three-fourths market share, as per RedSeer data. The organised sector constitutes less than one per cent of the overall home services market.

Suhail Vadgaokar, vice-president, customer experience, brand and PR, UrbanClap, says: “One of the biggest challenges we face is the training of professionals in terms of attitude, skills and availability of tools. UrbanClap invests highly in this to deliver customer experience.” He adds that the app has been built on four basic principles aimed at ensuring sustainability. They are convenience (allowing a service to be booked in two-three steps), service guarantee, technology: (for seamless user experience) and flexibility (allowing users to book slots as per their preference).

One of the key challenges faced by the industry is that the customers and partners take their relationship offline after being introduced which results in attrition of repeat usage, points out Sheenal Chhabra, home services expert, RedSeer Consulting.

Harminder Sahni, founder and MD, Wazir Advisors, points out taxi aggregators are offering fresh businesses for drivers while with home services or furniture the vendors have their own customers. He adds in India a taxi service is being created by the likes of Uber and Ola though in the West the aggregator model is more about offering people with idle assets and time a chance to make money. Across sectors, he argues, better services with good margin will largely be available in urban markets where people are more liberal with spending.

“The process of buying furniture varies from a metro to a tier-III town, where people can go far and deep for the best possible price, not necessarily the cheapest. They are different worlds altogether. So you have to look at the need gap, frequency of buyer, money they spend etc.” The key then is to be able to offer a differentiated product at great prices at scale.

Saurabh Srivastava, chairman, Indian Angel Network, says the aggregator or marketplace are sound models.

For a sector like home services, the only challenge is to figure out how you deal with people who are used to transacting with their neighbourhood service provider, he says.

“First, they have to convince the customer that they will be able to send somebody, sign up enough of these people, provide good service, and create a compensation pattern where they are incentivised to work with you,” he says, adding that the charging model should be such that service providers that are aggregated must believe they would make more money through this route.

“Aggregation is a good idea in a market that is fabricated, the only issue is to get the construct right because it’s important how you share revenues with yourself and the people you have aggregated, and giving confidence to consumers,” says Srivastava.

STEP BY STEP

• Limitations such as data speeds and low smartphone penetration added a layer of difficulty for Uber, which focuses on ensuring its app works well on all models and even with poor connectivity
• After setting up its distribution and carpenter networks, Pepperfry is aiming to expand its offline presence and set up the largest omni-channel business in the segment
• A key challenge faced by UrbanClap is the training of professionals in terms of skills and availability of tools. It invests in this to deliver customer experience