An Introduction to E-Commerce Market in India

An Introduction to E-Commerce

Market in India

by Anirudh Chari

All views and opinions in this document are personal and / or have been gathered based on extensive research in the sector and personal interest. All data points have been collected through secondary research, informal industry contacts and I have

not undertaken any additional work to establish the reliability of the sources or to evidence independence of the relevant source. Furthermore, collection of data for market assessment has been limited to such information as can be collected from

resources on the published public domain and meetings with market participants. Wherever sufficient information was not avai lable in the public domain, suitable assumptions were made to extrapolate values for the same. Hence, would request any

user reproducing the information to contact me before using the same,

E-Commerce Market has evolved from a ‚here-also‛ to a dedicated platform to showcase,

promote and sell products over the internet to an audience not limited by geography or store

location

1

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Backbone of

e-commerce

formed

Netscape

Launched

SSL

Encryption

enabled

Online

Shopping

One of the

first large

companies

to reach $1

mn in online

sales

Google

Launched

its beta

version

USPS

Launches e-

stamps

Ebay

acquires

PayPal for

$1.5 mn

Amazon

posts first

ever profits

Facebook

launched for

college

students

Acquires

Youtube

iTunes

becomes

the largest

digital

music

retailer

Broadband

penetration

witnesses

sudden growth

in most

markets

globally

3G networks by

Mobile

operators made

operational

New business models start

emerging globally such as

Groupon, etsy, Kaboodle, etc.

largely oriented to facilitate

online shopping

Mobile commerce witnesses a

spurt backed by growing

number of MIDs

The roots for social – e-

commerce were laid

Indian companies start to

experiment, new

entrepreneurs start online

businesses

Even traditional players such

as utsav sarees, Chirag Din,

etc. find success in e-

commerce





The e-commerce market in India is currently in its nascent stage and is expected to grow at

about 35% CAGR over the next 3-4 years

2

■ The e-commerce market in India is estimated to be valued

at over INR 30,000 Crores and is forecasted to grow at

around 35% CAGR over the next 3-4 years

■ The usage pattern, however, has remained quite uniform

and skewed over the years with services continuing to

dominate the overall market while others still lag behind.

■ Online travel contributes to close to 80% of the total

market

■ Financial services market, such as online insurance

payments and transactions through trading accounts, grew

at an estimated 25% during the one-year period ending

December, 2010

‒ Comprising 8% of the e-commerce market, this

sector is expected to grow by 34% by 2012

■ Online retailing contributes to about 8% of the total market.

It comprises of buying consumer items such as cameras,

computers, home & kitchen appliances, flowers and toys,

gifts online

‒ This category has grown from about INR 980

crores in year 2007 to over INR 1,500 in year 2009;

and is currently valued at about INR 2,200 crores.

8,146

14,030

19,688

31,598

46,520

0

10,000

20,000

30,000

40,000

50,000

CY 2007 CY 2008 CY 2009 CY 2010 CY 2011

E-Commerce Market in India (in INR Crores)

Travel Non travel Total E-Commerce Industry

Online Travel, 76%

Digital Downloads,

2%

Financial Services, 8%

Other Online Services, 6%

e-tailng, 8%

Components of the E-Commerce Market in India

Source: IAMAI report on the E-commerce Market in India

Source: IAMAI report on the E-commerce Market in India





Backed by a advances in technology, i.e. internet penetration, security, evolving user

experience management and cost competitiveness, the e-commerce market is only expected

to grow

3

Critical mass of Internet users 100 million Internet users

Mobile Internet is a big growth driver mobile installed base 6x to 8x bigger than PC installed

base

Rising middle class with disposable income consumers that are spread across the country

are computer literate and also have access to devices from where they can access the internet.

Middle class is increasingly turning to e-commerce as the primary outlet for sophisticated consumer

products and services

Payment gateways & logistics new breed of domestic logistics companies recognize the

importance of reliable delivery and technology investment, and a number of new payment gateway

companies such as CC Avenue have sprung up to service the growing e-commerce ecosystem.

Alternative payment methods such as net-banking and cash on delivery are now mandatory

offerings for leading e-commerce platforms

User Experience Customers prefer a trusted relationship with an e-commerce brand, and the

conveniences and reliability of e-commerce businesses have to outweigh the benefits of traditional

retail outlets





Marketing Companies

Business models in the space have evolved across the spectrum, engulfing personalized

time-share on every device…

4

E-Retailers -

Brands

E-Retailers -

Stores

3rd

Party – Seller

Platforms

Private Sales Daily Deal

Stores

Mobile

Commerce

Push Deals

Penny Auctions

Infrastructure Execution / Integration Processing / Order

Fulfillment

Traditional E-Commerce Emerging E-CommerceBusiness

Models

Service

Providers





…with convergence as the theme today

5

■ E-Commerce models are converging as different marketplaces and disruptive

business models are springing up and growing fast

‒ amazon’s investment in living social

‒ Groupon rejected offer by Google

‒ GSI Commerce acquisition of Ruelala

■ E-Commerce is no longer only an alternative distribution channel, but a way for

brands and merchants to reach out to customers in a targeted manner

‒ Convergence of e-commerce, distribution and services with full-service/marketing

■ E-Commerce is converging with content and social to create strong audience

relationships and enable sophisticated audience segmentation and targeting

‒ Higher content engagement, greater content stickiness

‒ Higher consumer yield and consumer lifetime value

‒ Greater audience reach and segmentation through social mechanisms





Friend Centric Social Shopping is fast evolving as a the next big wave, especially backed by

the increasing socially connected user bases on social networking sites

6

Group Buying /

Daily Deal

• They offer deep discounts – up to 90% off – local products, services and events.

• The sites are able to offer massive discounts because they rely on group buying – offering local businesses a

slew of new customers who all purchase the deal in bulk

• E.g.:Groupon, Snapdeal, etc.

Reviews and

Recommendations

• People tend to trust peer reviews over corporate advertising. These types of shopping sites usually have a list

of products that are rated and reviewed by members of the site

• This is nothing new – think Amazon – but with the latest social shopping craze, these recommendation sites

have really stepped it up: many offer discounts for reviewing a product or points for recommending a

purchase to friends and family.

Real-Time Online

Shopping

• Users log on to a site and either connect with their friends via Facebook or another social network, or invite

their friends and family via email. They can then shop online at the same time, discussing products and

getting each other’s opinion on services.

• E.g.: Wet Seal, DoTogether

Geo Location

Based

• Amid a relatively new form of commerce comes an even newer way to leverage social technology for

consumers: geo-location-based social shopping. Using a geo-location service like Foursquare or Facebook

Places, this type of social shopping happens in brick-and-mortar stores. Upon entering, you are usually given

some points or are directed to in-store deals from within the geo-location app on your smartphone. Users can

also look up product information and interact with other shoppers, all via their smartphones.

• The points earned can be redeemed for gift certificates at that stores

• E.g.: Shopkick, myShopanion

Rewards Based

Social Shopping

• Users are rewarded based on their purchases and on visiting stores (virtual or brick & mortar) which can hence

be redeemed for later buys.

• These are similar to credit card programs and more the users spend the faster they can accumulate the credits

Charity-Based

Shopping

• Another major trend in the social shopping experience is combining consumerism with charity. There are

several websites and apps that allow users to somehow donate to charity when they shop. This donation is

usually either added on as a percentage of the sale, or, more commonly, costs the consumer nothing and

instead is given by a sponsor or corporate partner of the social shopping service





Hence, it is imperative for an E-Commerce company to develop the right set of capabilities to

capture the vast opportunities in the space, including but not limited to managing a users

experiences…

7

Free Fall Stage

Decisions are not

consciously made

Actions do not have

consistancy

Daily happenings direct

business

Key factor for success is

luck

Guess Work Stage

Decisions are based on

opinions

Actions have limited

consistancy

Personal motivations

direct business


experience

Impromptu Stage

Some decisions are

based on facts

Some Actions

consistancy

Facts direct some parts

of business


focus

Imformed Stage

Decisions are based on

absolute facts

Actions have

consistancy

Facts direct business


accuracy

Decis

ion Q

uality

Maturity of

Decision

Towards mature decisions

Unaware

Aware

Interested

Purchase

Loyal

Moving online store visitors up the relationship ladder provides significant opportunities for growth:

Loyal customers have almost double visit to carts

Loyal customers have almost triple conversion rate

Loyal customers have 10% higher cart value





…and effectively using the data collected is imperative to business success

8

Focus Area Objective Sample KPI’s Guidelines

Visits to the

platform

Attract different types of

visitors to site using alternative

channels and approaches,

providing differentiating value

add

# of Visits per Month

Unique Visitor Count per Month

Advertising Cost per Visitor

% of Visitors Bookmarked Site

Page Rank of Homepage

Use search engine optimization using traffic

Insights

Utilize variety of acquisition Channels

Customize acquisition approach by prospect

Segment

Provide additional reasons for visiting site

Subscription

of visitors

Motivate subscription at first

sight, providing additional value

add and good first impression

Subscriber / Visitor Ratio

Total Unique Subscriber Count

Number of Subscriptions per Month

% of Subscribers with Full Data

Duration From Visit to Subscription

Call to action for subscription on landing Page

Make subscription fast and Convenient

Provide immediate value add for Subscription

Promote competitive value Propositions

Creating

interest in

items

Make items of interest easily

accessible and pro-actively

communicate relevant

information on merchandise

# of Items Viewed per Visit

# of Items Viewed per Subscriber

% of Subscribers Viewing Items

# of Categories Viewed per Subs.

% of Items Not Viewed for Long Time

Use effective and alternative categories for items

Pro-actively recommend Items

Provide ability to search with alternate means

Provide creative and instructive item views

Creating

customer

loyalty

Avoid abandonment of added

items

providing convenient transition

to check-

out and following up

% of Item Adds Abandoned

% of Item Adds Removed

% of Cart Value Proceeded to Checkout

Average Item Time in Cart

Average Time to Checkout

Provide one click check-Out

Make single item purchase faster

Cross-sell before check-out

Make added items accessible even if abandoned

Site

Reduce Cart

Abandonment

Ensure completion of check-out

with convenient processes and

cart follow-up

% of Check-outs Abandoned

% of Potential Value Abandoned

% of Abandoned Carts Purchased Later

% of Abandonment to Competitor Site

% of Subscribers with Abandoned Carts

Provide convenience and speed in Checkout

Remind and follow up abandoned Cart

Motivate abandoned cart purchase with benefits

Make cart available in next visit if abandoned





…and thereby, increasing sales, time spent and valuation of the platform

9

Focus Area Objective Sample KPI’s Guidelines

Streamline

Payment

processes

Process payment securely

and using alternative

means

% of Payments Bounced

% of Potential Value Bounced

% of Bounced Payments Abandoned

Payment Attempts per Purchase

Number of Fraudulent Cases Identified

Provide alternative payment modes

Ensure and promote payment Security

Keep customers informed about payment Process

Follow-up and recover failed Payments

Promote re-

visit and re-

purchase

Identify and motivate non-

returning customers

providing additional

information and value add

% of Subscribers with 2 Purchases

% of Subscribers with >2 Purchases

% of Subscribers with >1 Visit

% of High Value Loyalists

% of Subscribers with Returned Goods

Regularly provide new content and Offerings

Pro-actively take actions for dormant Visitors

Provide value add for repeat Business

Recommend for cross and up-sales

Promote

social aspects

on the

platform

Identify and promote the

social aspects of the e-

commerce platform to

increase sales and

valuation

% of subscribers liking products

% of subscribers recommending products

% subscribers commenting on products

% subscribers visiting other platforms from

ours for comparison

Develop a rating scale for products

Enable users to share the products either on the

same platform or other platforms

Motivate users to become prosumers by providing

additional value to them – brand ambassador

programs

Increase

interactivity –

buyer – seller,

seller-seller

and buyer-

buyer

Promote businesses as

well as business for the

members on the platform

% comments and replies on products

% sellers responding to user queries

# of comments on blogs and responses

Provide sellers with information on consumers for

targeted marketing

Provide interaction session off-line to promote

interactivity between buyers and sellers

Hence, E-Commerce performance management, through effective strategies and tactics across customer

lifecycle is imperative

The key success factors





The key success factors for a start-up ecommerce platform

11

`

Key Success Factors

Procurement and deciding

on what to sell

User Interface Design

Conversion Rate

Personalization and Product

Recommendation

Product Recommend

ation

How’ and ‘when’ a

product is delivered





A viewpoint on ‘What to Sell’ – Deciding on product categories that is amenable to be

moved to the online space and thereby developing a niche for the e-commerce platform

decides its success

12

While targeting a large user-base is important, developing a niche product portfolio is essential to developing a brand image.

A new start-up can focus on one or a mix of the following to develop their own brand image in the market

1

Options What it means to the e-commerce platform

Luxury products at a

unbelievable discounts

• Developing relations with large brands offering them scale and in turn seeking discounts that can be passed

on to the consumers

• Constantly negotiating with the product / brand owner for better deals against larger volumes

• Constantly finding new brands to be showcased on the platform

• Maintaining product delivery time agreed with the customer as well as the product originator/aggregator

Niche products not available in

the geography/market

• Sourcing a niche portfolio of products from other geography/ market such that it is cost effective for the

users

• Maintaining product delivery time agreed with the customer as well as the product originator/aggregator

• Dealing with regulatory nuances in the local market for the product

Making day-to-day products

available – convenience and

price

• This can entail developing a large distribution network for delivering day-to-day products to the customers at

given times

• Sourcing the products on time each time

• Negotiating based on volumes, product portfolio and exclusivity in the region of presence

Linked to a larger cause • Sourcing products that are linked to a larger ‘cult’ or ‘cause’ or ‘aspiration’ in the domestic market

Large offline scale being

exploited online

• All large retailers and aggregators can avail of this opportunity through tie-ups with regional logistics vendors

to have an online presence as well as a means of value added service to the customers

• Products unavailable in the store can be added to wish-lists and sent to the customers to offer additional

value and maintain loyalty





A viewpoint on User Interface Design – entrepreneurs often get influenced by the

‚complexities‛ of their business and begin designing the experience for exceptions that

only apply to 5-10% of visitor…

13

Abercrombie & Fitch

Apple

Crate & Barrel

Ann Taylor

TOOBYDOO

Russell & MacKenna

While user experience is critical to success on all types of websites, it is especially critical for ecommerce websites given that

visitors purchase decisions are linked to the aesthetics to the website. A poor user experience will result in loss in sales

Below are some examples of what I consider are aesthetically designed user interfaces

Other examples

of well designed

e-commerce

websites include

1. DesignCode

2. Shoe Guru

3. J.Crew

4. Nestliving

5. Naked &

Angry

6. Hard Graft

7. Hard Graft

8. Crate and

Barrel’s

9. Armani

Exchange

10. ….

2





…in other words, a shop should give an average user the feel ‘special’, ‘pampered’ and

‘motivated to buy’, alongside subconsciously inducing ‘trust’

14

Identified below are some of the specific factors that are generally present on well-designed e-commerce websites…

Design Aspect Why its important?

Navigation

‚Design for the

dumbest and

learned will

appreciate!‛

• E-commerce sites often face considerable challenges with navigation because of the number of products that are presented on the

site

• Large sites, such as those of department stores, have to be especially careful with navigation, because finding what the user

wants will usually become increasingly difficult with more options

• One factor to consider is how the average visitor will attempt to find a particular product

• Sufficient user testing is extremely helpful for identifying potential navigational issues

Product should

overpower Design

• A design that is extravagant for no legitimate reason will do more harm than good, it will draw attention to the design of the site

and away from the products

• The focus of design should be on the product rather than on making the website a ‚piece of art‛

Focus on Check-

out

• If the checkout process involves too many steps or is confusing, shoppers will wind up abandoning their cart with items left

unpurchased

• Ideally, check-out should involve a minimal amount of steps and should be as easy as possible for shoppers

• Processing time is another aspect that should be taken care

Design to match

the product

• When designing an e-commerce site it’s important to consider the style of the products that will be available on the site

• If the design style does not match well with the particular products that are for sale, there will be a disconnect that exists and

visitors may have a hard time relating to products and determining if it is right for them.

Showcase what is

relevant

• Showcase the popular products rather than forcing products on to the shoppers

• A number of sites are using a large area on the homepage that they can use to promote current sales, new product lines, or

whatever will generate interest

• On theses sites, this area will often be updated frequently, or it may include some type of slideshow.

Promote related

products

• Promoting the right products that buyers are likely to be interested in is key regardless of the approach that is used

Photos – who

wants to see

unclear photos?

• Selling online is different than selling in a physical store because the buyer cannot touch the product or see it in person before

making a buying decision

• Providing quality photos that accurately portray the product can help to overcome this challenge and can make the buying decision

easier on visitors

2





A viewpoint on Increasing Conversion Rate – traffic is not the best metric to judge an e-

commerce platform, instead, conversion rate is the metric new entrepreneurs should

worry about

15

3

In the virtual world - online conversions can come in many forms. If you’re selling a product online conversion happens when

a visitor makes a purchase and becomes an active customer, and if you’re offering a service your conversion might be getting

visitors to phone-in

Flaunt your

USP

Be open to

criticism

Agility to

price

variations

1 2 3

Mirror Your

Offers on all

channels

Widen

Product

Portfolio

Widen

Portfolio of

offers

4 5 6

Unless the USPs are copied across the site, a they might never be seen

so make sure your USPs are visible across the site

Constantly look at additional communication channels such as online

chat, Voice Over IP providers such as Skype and online feedback forms

to ensure you cater for enough visitors as open communication can help

increase your credibility

80% of customers research before committing to buy – hence while

comparing and adjusting your prices, look at the overall price to the

customer also taking into account any shipping fees and taxes

Employ multi-channel coherent marketing to promote your products and

services

Always be on the lookout for new opportunities and closely follow

customer trends and taste – Analyze, Analyze and Analyze

To become an appealing proposition, consider catering to as many

customer groups as possible by diversifying your product offers





A viewpoint on Personalization and Product Recommendation – Move away from a

product centric model to a customer centric model

16

4

Converse with your customer… …to understand their needs… …their aspirations…

…to reward them……and trust on the backend numbers……but don’t force your thoughts onto

your customers, let them choose what

they want





A viewpoint on Product Recommendation – give the users the power to identify,

recommend and vote

17

4

‚aggregate wisdom‛Capturing and utilizing the wisdom of the masses to pro-actively cater

to their needs.

Design Aspect Why its important?

Top Rated

Products

• Visitors are recommended products based upon the ratings received from other customers.

• The products that receive highest aggregated ratings in any given category or sub category start appearing as recommendations for

visitors when they visit those categories or subcategories

• Some e-tailers have actually started adding more predictive attributes in the ratings, to help other individuals make better decisions.

Collaborative

filtering

• A highly advanced algorithm does statistical match across different product combinations – and the recommendations are made

purely based upon the affinities across various products

• The good thing about collaborative filtering is that it minimizes the level of manual involvement from category managers and

automatically finds patterns of product combinations based upon aggregate purchase behavior

• This is what powers ‚People who purchased this product also purchased….‛ type of recommendations at Amazon

• Although these type of recommendations require a relatively high implementation cost, they minimize the need for setting up

manual business rules and can run on a ‚Auto pilot‛ mode to some extent

• Though the biggest downside with collaborative filtering recommendations is that they tend to produce ‚Averaging effects‛ which

causes the overall most popular items to be recommended more often which means that they will be consumed and rated more

frequently as a result

Expert’s voice

Humans need a

human touch…

• Although it is good to see statistically relevant recommendations based upon a democratic way of collecting insights, humans by

nature would take recommendations more seriously if they are coming either from experts in the category or from other individuals

who have similar tastes

• For example, a serious audiophile visiting bestbuy.com may not be interested in the best selling home theater systems on the site

• The true power of online recommendations is where customers are able to get advice and recommendations from others like

them – who they can trust more than the average crowd





A viewpoint on Securing the Payment Channel – Assurance and trust are key to repeat

purchases

18

5

All online retailers are concerned about minimizing charge-backs and payment fraud. This is one of those costs that can be

minimized if appropriate and proactive steps are taken

Securing

your own

servers

Securing

connections

with your

users

Securing

the

payment

channel

1 2 3

Unless the USPs are copied across the site, a they might never be seen

so make sure your USPs are visible across the site

Constantly look at additional communication channels such as online

chat, Voice Over IP providers such as Skype and online feedback forms

to ensure you cater for enough visitors as open communication can help

increase your credibility

80% of customers research before committing to buy – hence while

comparing and adjusting your prices, look at the overall price to the

customer also taking into account any shipping fees and taxes

Employ multi-channel coherent marketing to promote your products and

services

Always be on the lookout for new opportunities and closely follow

customer trends and taste – Analyze, Analyze and Analyze

To become an appealing proposition, consider catering to as many

customer groups as possible by diversifying your product offers

An e-commerce platform faces the following

security threats…





A viewpoint on Delivery – ‘How’ and ‘when’ a product is delivered can decide the fate of

a platform

19

6

A developed and integrated logistics set-up is key to assuring and ensuring repeat business. Differentiation in terms of

product packaging and delivery provide the users the assurance

Giving the user the option to set delivery date and time can be make

customers feel ‘special’

How a package is received at the door-step and how the customer is

greeted has a long term impact on sales

‚People don’t like to wait‛, hence delivering the product on-time in the

best condition possible will influence loyalty as well as increase

customer base

Customer is king and why should the customer pay for a damaged

product? INSURE the product that is sent to the customer and tell

them that you are doing them a favor,

Who wants a product that doesn’t look and feel like, what it seemed on

the platform? Give the users the option to return the product in case

they don’t like it. This way a consumer’s confidence on the platform

increases

All the above cost money, and hence it becomes integral to identify the

best suited solution to the problem at hand

Options on

informed

delivery

PackagingOn-time

delivery

1 2 3

Insurance

on products

Return

Policy

Manage

Costs

4 5 6

Challenges ahead an e-commerce start-up…

[email protected]

[email protected]

+91 91360 11000

+91 99102 61161

a.chari

Working as a management consultant, for over 4 years I have had the

opportunity to work on several projects for Indian and International clients in the

areas of Strategy Formulation, Validation & Implementation, Business Planning,

Entry & Expansion Strategy, Feasibility studies & Location Advisory and Market

Assessment. This entailed, advising several companies across sectors, such as,

Telecom, Media & Entertainment, Mobile Value Added Services, Information

Technology, Infrastructure & Financial Services, Real Estate, Manufacturing, etc.

My technical background & my management degree from IE Business School

have not only provided me leverage while assisting my clients during project

delivery, but also while pitching for new assignments and cross selling the

services of the firm.

I have also been involved in a few start-ups and entrepreneurial ventures over

the past years that failed. The most recent venture was an online commerce

platform with a unique social value proposition. The other ventures have been in

the power sector and second-hand auto retailing.

Anirudh Chari

mailto:[email protected]

mailto:[email protected]