Price wars in e-commerce are a given, but it is not a sustainable strategy. While pricing continues to be crucial, players are fighting it out on other parameters such as assortment and overall consumer fulfilment. With competition heating up, whats going to be the key differentiating factor in the e-commerce growth story?
Competitive pricing and overall consumer experience are not substitutes, and both are important. Between these two, it is difficult to say which would be the bigger contributor to the growth story of e-commerce, although the answer would certainly depend upon the product category.
It is critical to understand that consumers purchase based on the value they obtain. While the benefits from the purchase are simpler to see, the cost elements involved in the purchase process are often missed by companies. These not only include the price of the product, but also the cost of information acquisition prior to the purchase, cost associated with the purchase process other than the price (like driving to the retail outlet or surfing the website to make and ship the product), the cost of usage (like electricity consumption, maintenance) and disposal, if relevant.
In product categories where the product (or service) is less differentiated and does not depend upon the retail outlet, price would be the main driver. Books are a good example. Since books are the same irrespective of the purchase outlet, price can be the main driver of value in this category. Next day shipping or an instant download of e-books takes care of the instant gratification that consumers might desire.
Consider telecom services and associated products. While the product is largely not differentiated, the nature of the consumer need is such that companies cannot hope to do well based solely on the purchase transaction. There are other important elements that create value such as customer service, technical support and coverage area. In addition, a customer might want to touch and feel a device before purchasing it. Therefore, a hybrid model where part of the offering is made through an e-commerce site and the other part is handled by brick and mortar outlets can create better value for the consumer. Other examples are PC, tablets, shoes and garmentsproducts where consumers place significant value on touching and feeling the product before purchasing.
Overall, the key to understanding the growth in e-commerce lies in understanding how innovations in e-commerce create value for the consumer.
From a consumer point of view, an e-commerce business can be divided into three buckets: variety (assortments), value (discounts) and convenience. Convenience has to do with the fulfilment part or the supply chain. Assortment is very important because that is the USP of any e-commerce business given the infinite shelf space which is unlike offline stores where the number of SKUs is restricted. Assortment has to be backed by trust. It is like an orchestra: all the three factors need to work together for a great symphony. For example, if an e-retailer offers heavy discount of 20-30 per cent on a particular product but it doesnt deliver the product on time, there are payment issues or there is a lack of a transparent return policy, there is a problem. The experience of getting a discount gets diluted. At the same time, if a retailer is giving a good service but if the consumer realises later that other sites are offering better value, she suffers from post-purchase dissonance.
Its not just about selling products on discounts but also getting a customer to shop over and over on the same website. For example, at Yebhi we have 30-day, one-click return policy. No retailer offers this. A consumer can go to the my account section and click on return. In 48 hours, a Yebhi delivery person picks it up from the shipment address.
We invest in innovation-led marketing schemes like try and buy, where customers can try an outfit at home while the delivery boy waits. We have also hired management graduates to manage our logistics and delivery. They dont just deliver goods but also help customers understand the various nuances of buying online. These innovations demand a flexible and adaptable supply chain. We have our own logistics network called Yebhi Express.
The lack of the touch and feel factor in the online space is a challenge and controlling customer experience is a key differentiator. The next level of growth in e-commerce will come from mobile users. Around 15 per cent of our traffic comes from mobile internet. We already have an android-based smartphone app and will soon launch an iOS app and a mobile optimised website.
The single biggest differentiator that will help in the adoption of e-commerce in India is assortment. India does not offer large retail formats due to structural limitations. The retail lease cost as a percentage of gross revenue is 15 to 20 per cent which goes up to 35 per cent in metros. Similar numbers in the US are 6 and 12 per cent, respectively. This creates an opportunity for e-commerce companies. The second differentiator is trust. India is a low trust market compared to the US, Europe and Japan. Creating an e-commerce environment in India is difficult because buyers and sellers are not physically present in the marketplace. E-commerce in India is only 0.16 per cent of the total retail pie.
We expect e-commerce to be a $15 billion industry by 2015 (still less than 2.5 per cent). This is possible if e-commerce companies make innovations in supply chains and distribution networks, solidifying their offerings.
It is trust, not price, which is the key differentiator. We offer buyer protection, which is based on four trust pillars: the first is payment security. Our payment system is escrow-based and payment is not released to the seller until the consumer is happy with the product. Second, we offer product guarantee. We operate in the B2C segment and all our products are new and genuine. The third is easy replacement. If the buyer is not satisfied with the product, she can replace it or return it within 10 days. If ShopClues or a merchant is not able to ship a product within 72 hours, the consumer can cancel the order by calling customer support or email us for a full refund.
Fourth, all merchants go through rigorous verification and KYC processes. We have a merchant rating system in place. Through our cloud-based enterprise resource planning system, merchants get real time access to catalogue management, inventory management, order management, merchandising, sales reports etc.
This business is built on trust and only this quality can increase the number of purchases per online shopper. We offer not only popular branded products across categories but also products in unstructured and non-standard categories such as clothes, shoes etc.
Competitive pricing and overall consumer experience are not substitutes, and both are important. Between these two, it is difficult to say which would be the bigger contributor to the growth story of e-commerce, although the answer would certainly depend upon the product category.
It is critical to understand that consumers purchase based on the value they obtain. While the benefits from the purchase are simpler to see, the cost elements involved in the purchase process are often missed by companies. These not only include the price of the product, but also the cost of information acquisition prior to the purchase, cost associated with the purchase process other than the price (like driving to the retail outlet or surfing the website to make and ship the product), the cost of usage (like electricity consumption, maintenance) and disposal, if relevant.
In product categories where the product (or service) is less differentiated and does not depend upon the retail outlet, price would be the main driver. Books are a good example. Since books are the same irrespective of the purchase outlet, price can be the main driver of value in this category. Next day shipping or an instant download of e-books takes care of the instant gratification that consumers might desire.
Consider telecom services and associated products. While the product is largely not differentiated, the nature of the consumer need is such that companies cannot hope to do well based solely on the purchase transaction. There are other important elements that create value such as customer service, technical support and coverage area. In addition, a customer might want to touch and feel a device before purchasing it. Therefore, a hybrid model where part of the offering is made through an e-commerce site and the other part is handled by brick and mortar outlets can create better value for the consumer. Other examples are PC, tablets, shoes and garmentsproducts where consumers place significant value on touching and feeling the product before purchasing.
Overall, the key to understanding the growth in e-commerce lies in understanding how innovations in e-commerce create value for the consumer.
Siddharth Singh
Director, Fellow Programme In Management & Associate Professor Of Marketing, ISB
From a consumer point of view, an e-commerce business can be divided into three buckets: variety (assortments), value (discounts) and convenience. Convenience has to do with the fulfilment part or the supply chain. Assortment is very important because that is the USP of any e-commerce business given the infinite shelf space which is unlike offline stores where the number of SKUs is restricted. Assortment has to be backed by trust. It is like an orchestra: all the three factors need to work together for a great symphony. For example, if an e-retailer offers heavy discount of 20-30 per cent on a particular product but it doesnt deliver the product on time, there are payment issues or there is a lack of a transparent return policy, there is a problem. The experience of getting a discount gets diluted. At the same time, if a retailer is giving a good service but if the consumer realises later that other sites are offering better value, she suffers from post-purchase dissonance.
Its not just about selling products on discounts but also getting a customer to shop over and over on the same website. For example, at Yebhi we have 30-day, one-click return policy. No retailer offers this. A consumer can go to the my account section and click on return. In 48 hours, a Yebhi delivery person picks it up from the shipment address.
We invest in innovation-led marketing schemes like try and buy, where customers can try an outfit at home while the delivery boy waits. We have also hired management graduates to manage our logistics and delivery. They dont just deliver goods but also help customers understand the various nuances of buying online. These innovations demand a flexible and adaptable supply chain. We have our own logistics network called Yebhi Express.
The lack of the touch and feel factor in the online space is a challenge and controlling customer experience is a key differentiator. The next level of growth in e-commerce will come from mobile users. Around 15 per cent of our traffic comes from mobile internet. We already have an android-based smartphone app and will soon launch an iOS app and a mobile optimised website.
Nikhil Rungta
Chief Business Officer, Yebhi.Com
The single biggest differentiator that will help in the adoption of e-commerce in India is assortment. India does not offer large retail formats due to structural limitations. The retail lease cost as a percentage of gross revenue is 15 to 20 per cent which goes up to 35 per cent in metros. Similar numbers in the US are 6 and 12 per cent, respectively. This creates an opportunity for e-commerce companies. The second differentiator is trust. India is a low trust market compared to the US, Europe and Japan. Creating an e-commerce environment in India is difficult because buyers and sellers are not physically present in the marketplace. E-commerce in India is only 0.16 per cent of the total retail pie.
We expect e-commerce to be a $15 billion industry by 2015 (still less than 2.5 per cent). This is possible if e-commerce companies make innovations in supply chains and distribution networks, solidifying their offerings.
It is trust, not price, which is the key differentiator. We offer buyer protection, which is based on four trust pillars: the first is payment security. Our payment system is escrow-based and payment is not released to the seller until the consumer is happy with the product. Second, we offer product guarantee. We operate in the B2C segment and all our products are new and genuine. The third is easy replacement. If the buyer is not satisfied with the product, she can replace it or return it within 10 days. If ShopClues or a merchant is not able to ship a product within 72 hours, the consumer can cancel the order by calling customer support or email us for a full refund.
Fourth, all merchants go through rigorous verification and KYC processes. We have a merchant rating system in place. Through our cloud-based enterprise resource planning system, merchants get real time access to catalogue management, inventory management, order management, merchandising, sales reports etc.
This business is built on trust and only this quality can increase the number of purchases per online shopper. We offer not only popular branded products across categories but also products in unstructured and non-standard categories such as clothes, shoes etc.
Sandeep Aggarwal
Founder & CEO, Shopclues.Com