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Future Of eCommerce: Growth, Relationship With Vendors, Selling Below MOP

Our Future Of E-Commerce session was brought to you by Akamai. Click here to download the presentation on “Why the Internet Doesn’t Always Work”, by Lelah Manz, Akamai Chief Strategist (Commerce). Our notes from the panel discussion:

Changes in the recent times: There’s been a fundamental shift in sentiment towards ecommerce players at the venture capitalist end, after Flipkart’s acquisition of Letsbuy, according to Harish Bahl, CEO of Smile Group which backs ecommerce properties such as FashionAndYou, DealsAndYou and Freecultr. Speaking at a MediaNama-Akamai event on The Future of E-commerce, Bahl said that it was good that an element of reality check has creeped in and players are more focused on unit metrics, path to profitability and awareness about product categories that work. He said that the crazy bullishness has subsided and players and VCs are also skeptical of changes at the regulatory level, and that consolidation is bound to happen.

Gautam Sinha, Director (Technology and E-Commerce) at Indiatimes* said that the fundamentals remain the same and inducing the first transaction is a challenge for all ecommerce players. He estimated that not even 10% of the total Internet user base was doing ecommerce transactions and it’s important to convert this base. Neetu Bhatia, Chairman and CEO of Kyazoonga, shared the same sentiment and said that Indian ecommerce players have a lot of scope for growth since unlike markets like the US, the experience offered by physical retail was nothing to talk about.

Selling below MOP: The forum then discussed the issue of selling below the MOP (Market operative price) to acquire new customers. Sinha felt that discounts had reduced considerably and if an ecommerce store starts giving under hand or top of line discounts questions are raised. He said that compared to the last 2 quarters, there was no direct violation of the MOP.
Bahl felt that it all depends on the company’s cash reserves, and that there’s no generic answer to the question. He added that there was no way of measuring whether a customer comes to you just because you’re selling below cost but online shoppers are definitely looking for loyalty coupon and discount deals. He said that leaving “German Brigade” (Samwer Brothers’ Rocket Internet), the segment was witnessing investments by brand leaders in performance based advertising.


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Categories that are doing well: On categories that were doing well in India, Bahl pointed out that electronics was doing well followed by shoes and cosmetics. However, his view was that among hard and soft goods, sales of soft goods depended more on the ASP (average selling price), and was less category specific and more to do with price. He iterated it with the example of a high fashion brand Shirt being offered at a 70% brand versus an Indian brand that’s offered with a 30% discount, and revealed that the latter was more likely to sell well. According to Sinha, most of the focus was moving to fashion and lifestyle categories, primarily on brands.

Growth: The discussion moved towards the growth of ecommerce businesses in the Indian market, and Sinha had a view that the industry was growing at 70% and that it was safe to assume that the top 5-6 players were growing at a 100% rate. Bahl mentioned that there were players who were profitable but the number was far less.

Why advertise on mainstream media?: An audience member raised a question about the need for mainstream media advertising among ecommerce businesses at a time when just 10% of the internet population had been converted. Bahl responded that consumer behavior pointed towards an increase in trust the moment a brand is seen on TV. Sinha said that it was more about brand building than about acquiring new customers. Bhatia was also in agreement and said that it has a positive rub off specially when it comes to increasing credibility and to evangelize the brand. She added that ecommerce players in the US who had traditionally kept their distance from TV were also bracing it now.

What drives sales in tier-2 markets?: Bahl also talked about what drives sales in tier-2 cities. He said that if you come up with products that are not available outside the metros, sales from these cities is likely to go up, otherwise it’s relative to internet penetration in the city.

How are things changing with vendors?: According to Bahl, the dot com card has more credibility now, and vendors are seeing ecommerce as another relevant sales channel as against a wannabe. There’s a shift in attitude and every supplier is seriously considering his own ecommerce strategy.

However, he said that it’s still not optimal with a single percentage point share of organized retail, and systems are still at the lower end of the value chain. Sinha said that moved inventory information is more consistent now but inventory is still not real time and you’re dealing with guess work: “when the inventory says 10 you use 4.”

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Bahl confessed that he had faced a lot of issues with suppliers and that signing a contract alone is not enough and he relies on a “sniff test”, trying to verify supplier credentials well before signing a deal. He added that only a handful of vendors were giving real time inventory updates, however, daily feeds were more common. Bhatia felt that the basics have to be taken care of and one has to strike a balance by analyzing the demand before getting inventory. Also, committing to a minimum inventory should be done cautiously. She stressed on the need for centralized systems across vendors, and said that at least in the ticketing segment, they were getting real time inventory.

On returns: Bahl also talked about ecommerce startups thinking that 24 hours shipping was an important factor in customer delight. He said that it was more about being honest in your shipping commitment than giving 24 hour shipping. He said that India was far below markets like Germany when it comes to returns. While Germany had a 50% returns rate India was less than half at +-20%. Sinha said that they were building a negative consumer database listing customers who return and complain more.

* Disclosure: Indiatimes is an advertiser with MediaNama

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MediaNama’s mission is to help build a digital ecosystem which is open, fair, global and competitive.



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