Amazon founder and chief executive Jeff Bezos just announced an additional investment of $3 billion for India during his recent interaction with Prime Minister Narendra Modi at Washington DC, taking the Seattle-based e-tailer’s total investment to $5 billion in the market. This will certainly put pressure on local rivals Flipkart and Snapdeal to top up their investments.
In contrast to Amazon’s total commitment of $5 billion for the Indian market, Flipkart has so far raised about $3.5 billion from investors such as Tiger Global, DST Global, GIC, Iconiq Capital, T Rowe Price among others. Snapdeal has raised roughly $2 billion from the likes of SoftBank, Kalaari Capital, Alibaba Group Holdings, Foxconn Technology Group, eBay, and Nexus Venture Partners.
As competition is stiff and profitability still at bay, the one who has the ability to sustain longer naturally has an upper hand but not the trump card to win the game. The trump card lies in differentiation, not discounting – which has been the model so far adopted by all e-tailers to attract buyers. The once popular discounting model is already turning out to be both unsustainable and impractical.
According to a May 2016 Google-AT Kearney report on “Digital Retail in 2020”, customers will move beyond discounts to product assortment and convenience. “Online players need to build a value proposition around non-discount needs. The value proposition needs to be tailored by category. Players can differentiate themselves by offering targeted value added services (VAS), potentially also charging a premium. Faster delivery is a key VAS demanded by customers; others are category-specific asks such as extended warranty/buy back…” the report stated. Interestingly, more than 90 per cent of customers said they would be willing to pay for premium services.
Online players need to solve three critical challenges unique to the e-commerce supply chain, the report stated. For instance, e-tail incurs more costs than traditional logistics due to higher returns with typically 10-15 per cent of orders being returned. This can be solved by managing returns better and encouraging customers to share costs. The lack of instant gratification in online retail can be solved through faster deliveries and definite delivery slots for customers eliminating uncertainty. Finally, the lack of supply chain infrastructure in tier 3 regions can be solved by exploring innovative partnerships with convenience shops and FMCG distribution chains for the last-mile connectivity.
The fact remains that none of the e-commerce players in India are profitable yet. The top players – Flipkart, Amazon, and Snapdeal have often said that it’s a long-term game and they have just touched the tip of the iceberg. According to the Google-AT Kearney report, as adoption barriers are overcome, 125 million new shoppers will come online by 2020. The market is indeed still nascent but e-tailers will have to tap the opportunity by focusing on product differentiation and solving the industry-specific supply chain challenges.
BW Reporters
Ayushman is an award-winning business and tech journalist based in Bangalore, with diverse experience in journalism across newspaper, magazine and news wire. He is the recipient of the 15th annual Polestar Award in Jury's category for excellence in journalism in 2013. He is also an NSE-certified capital market professional (NCCMP) and driven by his interest, he has also attended hands-on workshops on cloud computing to stay on top of technology journalism
