Easy to adopt low-price strategy in e-commerce, hard to afford it: Amazon India head
As competitors such as Flipkart and Snapdeal are gearing up to beat Amazon in the highly competitive Indian e-commerce market, the US-based firm seems to be unperturbed. In an interaction, India head Amit Agarwal tells Moneycontrol, why customer obsession is the only way to navigate and what will be its strategy in the long-run.
Q: Amazon claims to be a customer obsessed company but beyond customers what is your focus area?
A: At the end of the day, we know that customers will only shop on Amazon until the very point, they find a better experience elsewhere. Our focus is best spent on ensuring that we have the best customer experience. So what you need to do is to earn customer trust. What customers most care about is access to selection. These are the things that have worked for us for 20 plus years and India is no different. About 30 percent of the overall units are ordered by Amazon Prime customers which mean customers trust us.
Q: What will be the change in Amazon India’s strategy to tackle the consolidated competition? Your rivals Flipkart and Snapdeal are ganging up against Amazon.
A: You and I are looking at an object and I see something very different from what you see. I am looking at something which is not changing...no matter what happens even after 20 years, customers would want great selection, great product and faster delivery. So, I am going to keep my focus on that...so that I am not distracted when everything else is changing. We have significant competition in every country and our strategy 20 years later in India would be the same.
Q: With the likes of Alibaba entering the market, will e-commerce companies go back to deep discounting?
A: Our strategy on pricing has always been a focused on innovation that allows sellers to offer low prices. I have no idea, what the others' strategies are. It is always easy to lower prices but very hard to afford low prices.
The only way you can sustainably offer low prices is by focussing on innovation. You want to make sure that you launch products that allow sellers to see reductions in their cost, increase in conversion.
That is the only sustainable way to offer low prices and that is what we do.
Q: Flipkart just raised USD 1.4 billion and there are reports of Paytm in talks with Softbank to raise a big round. Would you say that the capital dumping is happening the other way round?
A: We are so focused on the customers that any of that conversation is just a distraction for me.
Q: Last year, Jeff Bezos announced USD 3 billion investment in India. Do you plan to up your investment by the end of financial year?
A: You don't drive your investment for one-upmanship. You do it to serve your customers and we don't really hold ourselves back to invest on behalf of customers. We will continue to remain focused on selection, great value, and faster delivery. For that you need to maintain infrastructure and all of that requires investment this will continue to be the case for several years...because India is a very nascent e-commerce market. And we will continue to invest as and when needed.
Q: Most of the domestic e-commerce companies were started by first-time entrepreneurs where the charge now has mostly moved into the hands of their investors. Do you see this as a right way to build a large e-commerce business?
A: I really don't have any comment to make on this. I am not well informed or experienced to answer that question.
Q: What is the growth Amazon is reporting, across categories?
A: Fashion is the fastest-growing category for Amazon (in terms of the number of orders). Amazon itself is growing triple digit year on year in terms of GMS (gross merchandise sale). We talk about how Q1 for us was 85 percent year on year. Pretty much all our categories are growing at least that much and some categories growing faster.
Q: But hasn't the growth slowed down as compared to the previous year?
A: It would obviously be because you were on a smaller base. Last year we were doing 300 percent growth in sales year over year.
Q: What is the strategy for grocery? What are the challenges you are witnessing in this segment?
A: Amazon Now is in four cities and Amazon Pantry is in 53 cities.
It is true that these items are of the low average selling price. You can't really economically ship Rs 70 item. You have to drive basket building and hence need innovation.
To ensure that the customers buy more items from a single place and to ensure that the items are located together so that they can be shipped together. At the end of the day, it is the order value that matters.
Q: Will an inventory heavy model strike a chord with Amazon?
A: I don't know. I think with fulfilled by Amazon we are able to manage. We have provided technology to sellers to manage their inventory.
Q: Is there going to be a rationalisation on the cost of advertisements?
A: We look at what is the right mechanism to tell customers about a great service and that determines the expenditure. As our penetration goes up we will become more surgical. Try to compare it when you are growing triple digit growth year on year and your customers are growing you also need to understand where you tell your customers…the way we did that two years ago is very different from email@example.com