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Industry Snapshot: E-Commerce

  • Jun 2nd, 2017

Introduction

E-Commerce

The E-commerce industry started off late in India but it has dynamically changed the business scenario in India. With better and convenient shopping options, the e-commerce industry offers the power to provide an innovative, sustainable, consistent and seamless shopping experience. In 2016, about 69 million customers made online purchases and this number is expected to cross 100 million by the end of 2017. India is the fastest growing e- commerce market with an annual growth rate of 51%, surpassing China's E-commerce growth of 18%, Japans' 11% and South Koreas' 10% to reach $64 billion by 2021. The Indian e-commerce market is growing at a five-year CAGR of 31.2 percent. Channelized increase in investment has led to a positive prediction by different agencies about the expected rise in sales and it is estimated to reach US$ 120 Billion by 2020.

As per ASSOCHAM – Resurgent India Study predicted that the E-retail market is likely to jump to 65% by the year 2018 and might touch $17.52 billion. It is expected that this industry will continue to drive more employment opportunities and contribute towards creating more entrepreneurs through the e-commerce marketplace mode.

 

Industry vs. GDP

The Indian economy has been consistently showing good signs of growth, with the average GDP growth rate at 7.5 during 2015-16. The retail sector is showing a promising trend of 11% CAGR.

Currently, the total E-Commerce expenditure in India accounts for less than 2% of the total retail spending. However, e-Commerce has become a key driver in creating new markets in erstwhile unreachable geographies.

As per ASSOCHAM- Forrester Study, India's E-commerce revenue is expected to jump from $26 billion in 2016 to $103 billion in 2020.

According to a study conducted by Indian Institute of e-Commerce, by the year 2020, India is expected to generate $100 billion online retail revenue. Presently, e-commerce is more popular in Tier I cities but is quickly expanding itself to Tier II and Tier III cities.

Percentage of population who chose purchasing products online

India's standing in the world

According to Worldpay projections, India may emerge out as the world’s second largest e-commerce market by 2034 due to the massive surge in internet penetration, a swelling millennial population and the rising uptake of mobile phones. E-Commerce Industry is expected to grow tremendously in the next 2 decades. According to Morgan Stanley, by 2020, the online retail market could be more than seven times larger. Such growth is expected to be faster in India than in any other market. According to RedSheer Consultancy, online fashion market has a very low penetration in India, whereas in China and US, the penetration of fashion is as high as 30-35 percent of the total industry earnings.

Mobile commerce is likely to jump to 45-50% in 2017 from the current 30-35% of e-commerce sales. The study added that 50% of sales happen through a mobile device, with a majority of customers being first time users. The tier II and III Indian cities are displaying increased dominance in this domain.

Mobile based e-commerce sales in different countries

 

Low tier cities spend more on e-commerce than high tier cities

 

 

FACTORS AFFECTING INDUSTRY

1.     Government regulations 

  • Role of FDI and GST
  • India currently does not allow FDI in inventory-led models of online retail
  • DIPP(Department of Industrial Policy & Promotion) Regulations

2. Indian customer base

  • The Indian Customer base is not homogeneous.
  • 70 percent of our population still lives in tier III cities.
  • Some customers want great experience – including speedy delivery if not steep discounts. Some are bargain hunters, looking or purchasing cheaper products. Indian customers have low loyalty towards brands.
  • The majority of Indian online shoppers still prefer CoD to online payment options so E-commerce firms have to attract them through CoD.
  • Most of the consumers do not have credit cards.

3. Internet and e-commerce penetration:                                           

350 Million Indian citizens are already online and that number is expected to nearly double to 600 million by 2020. Local Languages are also trending online and influencing a majority of regional customers.

Local languages trending on the web

1. Discounting by e-tailers

Huge discounts by e-commerce platforms have resulted in year-on-year losses. When we acquire customers via discounts there is zero loyalty, no new space creation of your brand and revenue stumbles across the organisation.

2. Increase in use of mobile phones.

Country’s middle class switched over to 3G and 4G networks, both offered at affordable prices.

3. Logistics

Logistics play an important role in creating visibility in supply chain and is directly related to the organisation’s service delivery, efficiency, and overall consumer satisfaction.

E-commerce retail logistics market

 Types of E-commerce:

B2B (Business to business model)

In B2B model, both the parties interact for business and the consumer/customer is different from the parties in the trade. It includes parties like suppliers, distributors, wholesalers, retailers etc. Items included in B2B model includes Petrochemicals, Papers, Electronics, Agricultural products, Factory inputs, Food products etc.

Forrester predicts that by 2019, the B2B e-Commerce market will be worth $1.1T compared to the B2C market at $480B.

B2C (Business to Consumer Model)

In this model, the customer is in direct contact with the Manufacturer or Supplier. In this, the business serves as the touch point for other businesses. Most of the Brick Mortar shops fall under this category and include retailers. Through the expansion of technology, online retailers are gaining market share and are a threat to the B2C model retailers.

Examples: Amazon.in, Flipkart, Snapdeal etc.

C2B (Customer to business Model)

The most recent E-Commerce business model is the C2B Model in which the customer offers services to the business organisations. It is just opposite of the B2C model. The Internet and other technological advances have allowed easy access and growth of this model. Organisations are using it for authentic content write-ups or blogs from customers to write business profiles. This increases the authenticity of the website of any organisation.

Example - Freelancer websites elance.com

 C2C (Customer to Customer Business Model)

C2C Business Model are online platforms in which the customers come together to do business. This is similar to Classifieds in the newspapers but is more convenient. Here, people share their business with the other customers online. Due to huge internet penetration, people are getting into business without involving any third party thus, lowering cost and increasing profits.

E.g. eBay.in, OLX, Quickr etc.

Different types of E-Commerce Businesses

 

E-COMMERCE AND SOCIAL MEDIA

Social media is a platform that helps us to connect with millions of people in the world. Companies have started embracing social media as a tool to promote and grow their business, increase their online presence, and deliver high-quality customer service, as it can reach potential customers in an easy and cheap manner. It largely depends on the type of platform used for advertisement, the reach of the channel, distribution of marketing activities and investment in these platforms.

The platforms which add maximum to the revenue of E-commerce business are Facebook and Twitter. However, trends are changing and private messaging applications like WhatsApp, Instagram, Snapchat, Chatbots etc. are being used extensively by companies.

Social media is gaining momentum due to the multiplier effect as the messages on these platforms are easily shared with known ones and peers. And according to Sociable Labs, 62 percent of online shoppers have read product-related comments from their Facebook friends profiles, 75 percent of them have clicked on the product link to visit the retailer’s site, and 53 percent of those who clicked go even further and buy the product. Consumers are heavily influenced by choices of peers and this is reflected in the way brands are using social media.

According to a study by Social Media Quickstarter, 64 percent of Twitter users follow certain brands in order to receive exclusive product promotions and discounts.

Future of social media into e-commerce will also include AI personalities which will simulate real conversations, answer questions, offer recommendations, and resolve customer complaints.

 

Most e-commerce players have a corporate blog, where they do content marketing for brand building and consumer education. This is aimed at increasing customer knowledge about products and services available.

Modes used to reach customers over social Media

CHALLENGES

 

OPPORTUNITIES

  • According to digital market intelligence company SimilarWeb, India’s top 25 retail websites already account for some 62% of all web traffic nationwide.
  • Today India has over 137 million internet users representing about 11% of its population, and it ranks third in the world, behind China and USA.
  • The e-commerce retailing industry is witnessing approximately 1 to 1.2 million transactions per day.
  • Changing lifestyle of the Indian consumer seeking convenience, comfort, and variety.

Relevant Questions

  1. Major benefits of E-Commerce
  2. EPP(Electronic Payment Procedure)
  3. What is the future of E-Commerce Industry in India?
  4. How will demonetisation along with digitalisation affect E-Commerce in the long term?
  5. Most of the E-Commerce Companies are running in loss, will it sustain in the long term?
  6. With the International Players entering Indian Market, will the domestic e-commerce companies survive?
  7. Many personnel in E-commerce Companies are paid hefty salaries in spite of the loss. Is it justified?
  8. 3 things new start-ups should focus on.

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