 "Online marketplace, e-commerce,digital commerce")
Kunal Bahl
Co-founder & CEO, Snapdeal.com
Bijoy Roy has a small leather factory in Burdwan, West Bengal, where he manufactures high quality leather bags, wallets and jackets. He sells these products through retail outlets in Asansol, Durgapur and Kolkata. He has been looking to expand outside of West Bengal for three years now but has had to put it off due to high costs involved in setting up retail stores in metropolitan cities like Mumbai, Delhi, Bangalore and Chennai. Further, he realises that he knows nothing about branding and marketing nationally because of which he would not be able to sustain the growth in his business.
According to a recent study by Zinnov, there are over 50 million such small and medium business (SMB) units in India, accounting for more than a third of the country's GDP with only 10 million of them being technology ready. In order to sustain their businesses in this increasingly competitive world, it is now becoming extremely critical for these SMBs to move out of their comfort zones and reach out to a wider audience of consumers.
Some of the biggest challenges in doing so include the lack of proper logistics and retail infrastructure, limited computer expertise (only about four million SMBs in the country are using PCs in India), inadequate working capital, low marketing expertise, and geographic bottlenecks.
Only 5 per cent of the $500-billion Indian retail industry is organised (Source: The Indian Kaleidoscope: Emerging trends in Retail by PwC); this unorganised and fragmented nature of this industry lends itself to unique issues such as reach and marketing for businesses that want to sell their products nationally. The online channel helps overcome these issues by offering a platform that at a much, much lower investment as compared to the offline channels is allowing businesses to reach out to a national and potentially international audience while supplying locally. Factors like rising internet and mobile penetration, a younger population with increasing disposable incomes looking for ways to improve their lifestyles and increase in the demand for comfort and convenience while shopping have together fuelled the growth of digital commerce in India.
Traditionally, non-travel digital commerce paved its way through the inventory led model. In layman terms, online retailers just like their offline counterparts would stock up the products in their warehouses and then sell it to customers through their websites. This model does come with many positives - like the e-tailer has complete control over the selection listed on the site to order management to delivery - but also raises serious concerns like high working capital requirement, sales forecasting risks, distressed inventory build-up etc.
This often has a cascading effect on merchants who are supplying the products to the e-tailers with concerns like delayed payment cycles if products supplied fail to sell, zero control on the price points being communicated to the customers etc. All these factors lead to the realisation that the conventional inventory led e-tailing model is probably not sustainable and scalable both for the online retailers and the merchants selling through them.
This is where an online marketplace comes in.
Digital commerce through an online marketplace provides a way out in a very simple manner. On one hand, businesses from across the country list their products online for free, and on the other, the online marketplace connects them directly to consumers across the country. There are no fixed costs involved in listing their products. By providing an additional sales channel, online marketplaces in India can help a multitude of Indian businesses that don't have the resources or the know-how to effectively market their products and services nationally.
Globally too, this model has seen more success vis-a-vis the conventional inventory led e-tailing model. Some examples include Taobao in China, Mercado Libre in Latin America and Gmarket in South Korea. The Alibaba Group which currently dominates the Chinese e-commerce market handled 1.1 trillion yuan ($170 billion) in sales last year through two of its portals, Taobao (C2C marketplace) and Tmall (B2C marketplace). While Taobao has 800 million product listings and 500 million registered users, Tmall has 50,000 registered merchants including some of the popular brands like Unilever, Nike and Microsoft.
The success of Taobao and Tmall in China is a significant point to note as China has its own unique set of challenges when it comes to e-commerce. Interestingly, some of these challenges are similar to India, like the sheer geographical size and varying socio-economic population segments that buy online. The fact that the numbers one hears in relation to Alibaba and its subsidiaries are record breaking, gives much credence to the argument that online marketplace is a better model, especially for emerging economies. What matters, of course, in realising these numbers is how a company executes the online marketplace model.
Logistics, product merchandising, customer communication and after sales service are some of the most important factors which need to be considered by any business while selling products online. By selling through an online marketplace, all of these important aspects are handled by the platform. From helping businesses to list their product photographs and descriptions, with stunning visual merchandising, to marketing them to customers through email marketing and promotional campaigns, online marketplace can help SMBs build a national brand without spending on unaffordable mass media advertising or opening stores in expensive retail locations.
With only 1 per cent of Indian consumers buying online, digital commerce is still at a nascent stage in India and an online marketplace model is thus perhaps the most suited for India as it brings the vibrancy of the bazaars to the internet by offering a selection of millions of products in one destination for consumers. With zero inventories and, thus, a much lower working capital, online marketplace also allows e-commerce players to offer a much wider product assortment to their customers. It allows e-commerce companies to concentrate on much more relevant business aspects and build competencies core to the internet business like bettering customer experience, optimal utilisation of available marketing channels and an in-depth study of customers' needs and wants, rather than invest their efforts on non-core aspects like inventory and working capital management. And considering the competitive and unpredictable nature of the Indian market, where customers can be rather unforgiving, only players that have a good handle on their core competencies which provide the best buying experience can survive.
PS: Bijoy Roy started selling his leather products through an online marketplace six months ago. He had to make no significant investment or pay any listing fees for his products. Already, half of his company's sales are already through the online channel. He is now considering setting up a new factory to meet the national demand for his products and plans on sending his daughter to Delhi for a private college education. On the other hand, Lakshmi who lives in Kozhikode, Kerala has now become a loyal customer of the products listed by Roy on the online channel and now recommends them to her family and friends. That's a life-changing event.
