Clash of the Titans- eCommerce Industry

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Indian e commerce market expected growth?

 

  •  Indian E-commerce industry is likely to be worth USD 38 billion by the end of 2016
  • By 2020, this industry is likely to touch a whooping figure of USD 119 billion
  • India is adding three Internet users every second and is already the second-largest Internet market globally in terms of users
  •     Internet penetration likely to increase from 35% in 2016 to 59% by 2020 (which estimates around 320 million online shoppers )
  •    M-commerce i.e. shopping using a mobile device likely to contribute up to 70% of total revenue generated by various e commerce websites
  •   Expected significant upward movement in the industry due to aggressive online discounts, rising fuel price and wider and abundant choice

 

Why is there a war? What the fuss is all about?

 

It is evident that Indian e commerce industry offers a tremendous growth. With such a promising growth and so much at stake Flipkart, Snapdeal and Amazon are fighting for their survival in e-commerce industry. All three big shots want to maximize their market share and are implementing different strategies to attract more customers. Few of these include offering huge discounts, tightening the refund period, faster delivery of products etc.

In 2015, Flipkart was the market leader with 43% market share. Snapdeal had 19% market share whereas Amazon had only 14%. By March 2016, these figures completely changed. Flipkart’s share fell to 37%, for Snapdeal it was 14% and Amazon was able to gain 23% of Market share.

So what led to change in these figures? It was the customer experience these companies were providing to their users and the discounts they were offering. If you see the below image you will notice that revenue generated is directly proportional to the loss incurred by the company. Which means that companies are generating revenues but at the cost of their profits i.e. they are trying to attract customers by offering more discounts which is not a good way of doing business. And by doing so companies will attract only the price sensitive customers who are likely to leave them in case these users get a better deal on other sites. So is it a right thing to do and does it guarantee a long term growth?

 

ecommerce profit loss

 

How does it benefit a consumer?

With increasing rivalry among these players, bargaining power of customers is increasing as now they have a lot of options to choose from. Also companies are offering huge discounts, and as a result customers are getting same quality products online but at a much cheaper price.

 

Recommendations

 

Strategies for sellers-

1) Account reputation

Every seller has an account on e-commerce website and the reputation of the seller depends on factors like shipping speed, Returns and cancellation, Positive and negative feedback etc. It is important for a seller to maintain a good account reputation because it not only increases its sales but also enhances the brand of the seller and minimizes the product returns (due to quality issues).

E-commerce websites should keep a track of the all the sellers. They should incentivize the good sellers (so as to motivate them to do well) and barred all the bad sellers from doing business on their platform.

 

2) Study the competition

It is very important for sellers to study and analyze the competitors selling on other marketplaces and accordingly they should formulate their own strategies. A seller has to decide whether he wants to sell more at less price or sell less at high price. Say for example: Seller A is selling a Sony cyber camera for Rs 3000 on Flipkart and competitor B is selling the same product for Rs 3200 on Amazon. Now seller B sells 10 units of cameras in a month and due to lesser price seller A is able to sell 15units. Cost of the product is same for both i.e. Rs 2500. Therefore, seller A makes a profit of 500*15= Rs 7500 whereas B earns 700*10=Rs 7000. Hence it is up to sellers whether they want to sell more at less price or sell less but at a higher price.

 

3) Follow Loss Leader Pricing Strategy –

A loss leader is a pricing strategy where a product is sold at a price below its market cost to stimulate other sales of more profitable goods or service. It allows the sellers to build a database of customers and increases the opportunities for positive feedback.

 

Promotion strategies-

1) Right merchandize mix-

E commerce websites should regularly analyze their business using Google Analytics and forecast the future trend. Categorizing the products into categories of High Sellers, Regular Sellers and Slow Sellers would help them design the right merchandizing mix.

 

2) Split Catalog into 4 categories-
  1. High Traffic – High Conversion ( Star products , Always Keep in stock, less advertising , increase inventory)
  2. High Traffic – Low Conversion ( Adjust price, improve product description)
  3. Low Traffic – High Conversion ( Advertising, increase visibility )
  4. Low Traffic – Low Conversion – ( Discontinue)

 

3) ecommerce Discounts

Discounts play a vital role when a customer is in a mood to make a purchase. Today, customers want to shop from a website offering more discounts rather than a website offering no/less discounts (even if it offers a lesser selling price). So companies should follow high-low model of discounting i.e. initially (when the product is in introduction or growth stage) they should keep the prices high and offer heavy discounts (to get the attention of its customers). As the product enters the maturity stage they should eventually decrease the price.

 

Conclusion

 

E commerce industry is a very lucrative industry and is expected to grow manifold in the near future. It is evident from the fact that despite a healthy competition a lot of investors are willing to invest money in this booming sector. But to succeed, companies will have to think beyond discounts because discounts will give them only price sensitive customers and not brand loyal customers. So if a company is able to provide better customer experience, good quality products at affordable price, value for money etc. will definitely capture more market share.

 

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