In spite of slower economic growth and spiralling inflation, India's e-commerce market is bucking the trend. It recorded a staggering 88 per cent growth in 2013 to $16 billion, according to a recent survey by industry body Assocham, which estimates the e-commerce market in India to reach $56 billion by 2023.
That's great news for entrepreneurs wanting to strike gold in the e-tail space. However, if you're one of these enthusiasts, be warned. The e-commerce market is fast growing but there is a tough competition with big league of players existing in the space. Hence, smaller players had better have a solid plan for their venture, a smart revenue model and loads of imagination for a stand-out offering.
But let's get back to the good news. "The B2C space will see lots of entrants because of a limited retail footprint in India, especially in Tier 2 & 3 cities, which will start shopping online looking for products," predicts Rajat Wahi, Partner FMCG & Retail, KPMG in India. Here are a few tips you should consider while taking the plunge.
1. Establish Differentiation: The e-commerce space has evolved to becoming a market crowded with players. It is important to build a unique proposition or core differentiation in your offering. It could be customisation of a product, an experience no one else is offering. "It is no longer as simple as displaying a product or selling it online. Chances are, you will encounter a price war and those with deep pockets will have an edge. So the key is to offer something very different," says Peyush Bansal, CEO & Founder, Lenskart.com.
Does that mean a niche offering will leave you better placed? "I would agree, to some extent, like focusing on a particular area and developing special expertise. But that does not mean offering a niche product or service in a category that is still very simple for someone else to copy is a good enough differentiation. You need to keep working on your USP even in the long run," adds Bansal.
Even if you have a truly unique idea, once you launch it, the idea is open for others to copy. "So think carefully about what will keep you in the game and ahead of the pack," advises Devangshu Dutta, Third Eyesight, a consulting firm focused on the retail and consumer products ecosystem.
2. Choose The Right Revenue Model: You have to find a gap in the market or geography you are trying to address. The gap could be the absence of players or that existing players are unable to serve the market well. Then decide what kind of model to follow -- inventory-led or marketplace -- because each one has its own complexities.
"Determining the right model will eventually dictate how you make money, the revenue stream and whether can scale up your business and sustain. It will also help you determine the complexity of managing the businesses or ecosystem partners you need to bring on board, from payment, to search companies, to logistics," points out Deepa Thomas, evangelist at Ebay India.
3. Driving Offers: One of the many key challenges for e-tail ventures is to drive traffic and acquire customers. To attract maximum eyeballs, you will be forced to follow strategies like offering coupons, discounts, cashbacks, cash-on-delivery and try-and-buy. "It is always a challenge for new players to attract new customer and retain them. That's where the big cost lies," says Wahi.
You should be able to justify your cost of operations and remain price competitive but if you go on a discounting spiral, at the end of the day, even your suppliers will shy away and your brand will be perceived as a discounted brand. "Discounts are a necessary evil for acquiring a first-time customer but price cannot be the sole point of differentiation and it is not sustainable," says Pragya Singh, Associate Vice-President, Retail,Technopak. You should be carefully driving discounts and offers. “A negative, or even zero, profit margin due to the use of discounts and cash backs cannot translate to profits, even at scale,” says Ravi Narayan, Director, Microsoft Ventures India.
4. Get Tech-Savvy: Technology is at the core of an e-commerce business, whether front end or back end. It is therefore imperative that your online business is backed up with strong technology. You cannot survive if you don't build an efficient process at all levels, from the front-end on the website, to customer support to ERP (Enterprise Resource Planning) system. "It is better not to outsource the technology and have an in-house team or someone in the core team who is conversant with technology," says Bansal.
5. Make Sure You Can Scale Up: "Every business is not a potential Amazon, Facebook, Google or EBay. Or, for that matter a Reliance, Tata or Wal-Mart. Figure out the potential scale of your business and then build your business accordingly," advises Dutta. There is nothing wrong with having an online business that pays the bills and gives you a comfortable lifestyle, without giving you a multi-billion dollar market cap, he adds. When planning to scale up, you will inevitably require external or internal funding, and whether this funding comes or not will depend on you're your business stands for.
"A lot of venture funding dried up in 2013 and, in smaller categories, most of it goes either to large players or leading players. New players have to think of propositions which could get good ROI to inspire funding in the long run," opines Singh.
6. Get A Grip On Numbers: You need to have a command over your numbers like sales, margins, last order placed, number of products or services sold, money spent and lost on each product, apart from analysing the pattern of users navigating your website. As a new entrant you should be able to balance 'cross sale' and 'up sale' between categories of products, which will eventually help you manage discounts, cash backs, promotions etc. Analysing demography, size of population and geography will help in marketing to target the right audience.
"You have to be able to balance between organic (directly bringing the customer online) and inorganic (through ads) traffic to keep down the cost of marketing," says Priyesh Jain, Founder and Director, Shopuli.com. Adds Dutta, "Most importantly, make sure you're not setting up your venture as a victim of CPA or cost per acquisition." You need to employ a marketing mix of public relations, email campaigns, blogs, pay-per-click advertising, and targeted content marketing such as search engine optimization. Even the use of aggressive marketing tactics by companies would be of no use if there isn’t fundamental demand for the product, and use of such tactics is an indicator of a lack of demand. “Assuming demand is not an issue for a company, ideally, marketing should account for no more than 20% of spending costs,” says Narayan.
7. Master The Execution Process: The Internet does not level the playing field for execution because e-commerce is not only about the Internet. "To make your business work, you need to think about product, branding, marketing, sourcing and supply chain, and finance -- all the back-of-house, 'boring' things that offline businesses have to deal with," underlines Dutta.
Underestimating costs and difficulties relating to delivery, including shipping, returns or undelivered items and cash-collection are some other mistake you would do well to avoid. If you don't have a clear path-to-profitability per transaction, it would be such a shame. "Through right process (quality control checks/packaging) and policies (limited no. of days/ mishandling, etc) you can make products/categories profitable even when customer returns for genuine reason," says Praveen Sinha, Co-founder, Jabong.com.
8. Be Patient: E-commerce is a retail business, where you spend money setting up your store, getting ready to serve customers, beating your drum about the market. Then wait. And wait. Traffic will only build over time as customers walk in one at a time, make their purchase decisions one at a time, and may come back if they're happy. "Have the patience and the cash to last till your business starts generating momentum and cash to meet current and future needs," advises Dutta.
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