ecommerce in India – The Real Challenges?
[Three part series, contributed by Anshul of Designgrill analyzing the state of ecommerce in India]
India is yet to witness a breakthrough ecommerce success story particularly in online retail. There are number of barriers, most of them out of your control, which makes this space difficult to conquer. Travel and Matrimony ventures are doing relatively good and we will see why the case is so.
A successful business requires a lot of auxiliary services which supports the main business. Internet based businesses are no different. In effect, the companies providing these services necessarily become your business partners and that too, interestingly, in revenues and not profits. If you are a garage based startup, sorting these things out will be bigger challenge than getting visitors to your site. You will have to invest significant amount of time and energy in just setting up basic things.
India still hasn’t developed a matured ecosystem which will help small, low on fund startups to grow. At some point or the other, you will have to get your hand dirty and make efforts to put all these auxiliary services in place. Not only you have to look for services with minimum service level but also make sure that it doesn’t put a hole in your pocket.
An eBusiness is a normal business with internet as a medium. This doesn’t change basics of the business but instead you have one more responsibility to make it work on the internet.
Following are some of the infrastructural barriers responsible for slow growth of eCommerce in India. Some of these even present new business opportunities.
- Payment Collection: You could end up giving a significant share of your revenue here (~4% or more) even when you get paid by netbanking. With a business of thin margin, this effectively means you are parting away with almost half of your profits. Fraudulent charges, chargebacks etc. all become merchant’s responsibility and hence to be accounted for in the business model.
To add to it, you still don’t get that world class service which gives a seamless experience for users. They might be greeted by a poorly designed landing page of your gateway which will ask a million questions even if user wants to pay by netbanking. This might lead to low conversion rates. - Logistics: You have to deliver the product, safe and secure, in the hands of the right guy in right time frame. Reaching this Holy Grail with not spending too much is a dream for Indian ecommerce initiatives. Regular post doesn’t offer an acceptable service level, couriers have high charges and limited reach. Initially, you might have to take insurance for high value shipped articles increasing the cost. Low value articles will have significant shipping cost which will make them costly.
- Vendor Management: However advanced your system may be, you will have to come down and deal in an inefficient system for inventory management. This will slow you down drastically. Most of them won’t carry any digital data for their products. No nice looking photographs, no digital data sheet, no mechanism to check for daily prices, availability to keep your site updated.
- Taxation: Octroi, entry tax, VAT and lots of state specific forms which accompany them. This can be confusing at times with lots of exceptions and special rules.
Finding a solution to these problems requires experience – meaning the ride will be very bumpy for a garage startup.
Travel industry doesn’t have a problem of logistics. Their vendors have very advanced reservations system in place already which will tell you about real-time pricing and availability. They have long been accepting card payments and it’s now part of their business model. All the taxes levied to them are usually easy to calculate as it comes from their vendor itself. This domain is already conquered.
The challenge left is in the area of selling tangible goods. What’s your take on these issues?
Part 2: Understanding Payment collection systems [April 16th]
Part 3: Misunderstood Indian Internet User [April 20th]
Must Read: ecommerce in india: IRCTC still contributes 1/3rd – Something to worry about?
Forum Discussion: Challenges to ecommerrce in India | Comparison of Payment Gateways in India | Payment Gateway – USSD Processing
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About the author - Ashish Sinha is a Startup Mentor/Product Strategy Coach, and the founder/chief editor of pluGGd.in.
He has launched/managed couple of products (consumer as well as enterprise) in US and India, and now consults with startups/small businesses on their product/media strategy. He can be reached at: ashish (at) pluGGd.in [+91 98452 06443]
Apart from what you mention about problems from the company’s point of you…we have issues at the customer side…it is customer trust that is missing in the whole chain.
I don’t think Indian customer trust goods delivered from virtual source by an unrelated delivery boy… the question that haunts before ordering is “whom to approach and how to settle when something goes wrong?”.
Alas there is nothing to blame them…because our system is not ready…no-one will take responsibility when something goes wrong.
As you know Travel occupies more than 80% of our e-commerce where customer knew what he is getting on the spot (while booking and while receiving-traveling-lodging). He has someone to talk to while receiving so don’t mind booking it…even if it cost a little more.
Again a lovely post and I completely agree with what you have put here. I think the only other thing that I would like to add is
Mindset: The Indian consumer primarily likes to shop by touching and feeling objects of interest. For e-commerce to succeed there has to be a drastic shift in the mindset whereby they are not only accustomed but comfortable by making purchases by viewing images.
As a consumer I’ve been very satisfied with the e-commerce sites I’ve frequented. Flipkart.com and Picsquare.com. Flipkart has free shipping.. that makes me very happy
Picsquare has been very good at customer service. I had a few problems with my orders, but they worked on it and definitely have repeat business from me.
I think startups have to make sure that their customers come first. Timely delivery of good products and the customer will be happy. It won’t matter much then how good the web site looks and such.
@kasi
Customer trust is not something to solicit, you have to win it. If system is not ready to take the responsibility, customer is not to blame. Part 3 of the series has more views on this.
@Swanand
Purchasing by viewing images can be decieving. Touch and feel do not matter always, especially for branded products. But still there isn’t any expected growth in this space.
@chica
Good customer service can’t be replaced with anything. Those will master the art will be always lead this space.
wah kya article hai… bahut ache!!
I dont agree with some of the issues that you have pointed out.
- Some of the domestic payment gateway offer charges like (2.5% Axis Bank). As long as you can convince them that you have high volumes
- Logistics can be given to a logistics provider, they charge you something like 25-30 Rs. per delivery, of course the weight of the package needs to be factored in, but as long as you include that price in the product itself (ala Flipkart), I dont see this as being a prblem. One real bugbear is that some of these logistics providers do not deliver in out-of-reach places, so care needs to be taken with those deliveries
- Most of the vendors do have a product portfolio. It also depends a lot on the engagement model, if the vendor is going to dispatch those products, then he definitely will have a digital catalogue. If we are going to dispatch, then a host of warehousing questions are raised!!
- One issue that should be brought up is customer support and grievance redressal systems need to be setup as the business grows. The owner can handle the complaints only for a certain point of time
Nice Analysis. here are my views
- You can even get the rate of 1.8% which IRCTC gets, but convincing that you will have high volumes might require you to present your balance sheet showing figures in crores. Definitely not for a startup. I have talked more about it in Part 2 of the series.
- Logistics is definitely to be given to a logistics provider, its the last thing you want to do in-house. But the problem is assured and reliable delivery. When you have pricy items, you would not take chances and pay high for good service. It includes the cases where your delicate, bulky, costly item (think a laptop) should not reach even with damaged packaging. In comparison, books are easy to deliver, even using regular post. The whole point of this series is, why not new items are being sold apart from what’s already selling since long?
- Some of the vendors may have a catalogue, but then there will be no uniformity. I mean Canon and Nikon might not have same type of digital catalogues. Warehousing might be a neccessary evil if you want to have current availability and pricing on the website.
- Customer support can be handled in-house very easily. You can start with one operator with an email account, phone and excel, and still maintian that quality of service. This area doesn’t require you to depend on someone external hence is not a barrier.
Very informative !