The evolution of Indian ecommerce

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India being a diverse country, displays a wide scale of features, where the single common need of 1.2 Bn (World Bank: Census 2011) India’s population can be consumption/goods; the country offers a strong market grounds for any producer or a manufacturer. What we have seen in past 3-4 years is a brisk risk of a market facilitator for any producer-consumer market i.e. ecommerce, more specifically Online Retail.

Recently Forrester published a new report on ‘The Evolution of Global ecommerce Markets’, which highlighted how global ecommerce markets are evolving, analyzing how markets are shifting from an early stage to the one in which consumers spend lavishly online and buy across a wide variety of categories. It was noted that markets tend to go through framework of four phases as they reach the stage of well-developed ecommerce market. Those four phases can be identified as following:-

Phase 1: Connecting and Entertaining: Where people get introduced to Internet and use it for connecting with people and fetching information.

Phase 2: eBusiness Basics: Where people try various services available online such as Internet banking, booking tickets, paying taxes, filing returns etc. to start getting used to transact online.

Phase 3: Comparable Goods Purchases: Where people understand products can be bought online and try buying standard products that can be compared across options available offline or online such as books, mobiles, and laptops.

Phase 4: Subjective Goods Purchases: Where people develop some trust for online buying and can buy products which are facilitated by stronger informed purchases.

Now in India where majority of the population is still offline there can be Phase 0, where people are not aware of Internet or have never tried it at all.

Analyzing further the span of Indian population across all these phases the market can be broadly placed in following spectrums.

Phase 0: Offline Consumer. Around 90% of the population is offline, which includes rural and urban population where Indian urban population is around 377 million (31.16%) (Source: Census of India 2011). The following graph below show the Internet users as the percentage of population, which is on the rise, which means there is a phase shift from Phase 0 to upwards phases.

Figure: Internet Users as a % of Population

Also over 50% of the population of India is aged under 25 and over 65% of the population of India is aged under 35 (Source: Census 2011) which will lead to rise of internet population on web or mobile driven by the need for communication and information available on internet.

Phase 1: Connecting and Entertaining. Not all ‘claimed’ 121 million of internet users are frequent on Internet. Also according to IAMAI the active number of Internet users is around 97 million (those going online at least once a month). Now people are using Internet actively for networking, social & professional with more than 45 million users on Facebook and more than 15 million on LinkedIn (Source: Socialbakers). Users in this phase can be considered as high potential for ecommerce market with the rise of disposable income.

Phase 2: eBusiness Basics. Online travel is still the bigger pie for Indian ecommerce. More than 10 million transactions happen on IRCTC each month and 28% of the total travel gets booked online which represent 87% (Avendus: 2011) of the Indian ecommerce market but it also includes the B2B transactions which are substantial. The online classifieds such as Naukri & Bharat Matrimony have acquired a lot of youth to go online. Users in this phase will require some building of trust for online shopping and promoting product ecommerce as ‘Convenience’ to make them shift towards upward phase.

Phase 3: Comparable Goods Purchases. Consumers developing trust to purchase online in an emerging market such as India initially will look to risk buying products that they are confident of without touch & feel. The same happened when Flipkart started to deliver books and electronics online for such consumer behavior. Other categories people opt for are mobiles, laptops, software, and music to purchase from online. What companies such as Flipkart, Homeshop18 have created are not just brands but chunk of consumers satisfied with buying experience that was delivered online. People in this phase are more likely to shift to high purchasing behavior online and in diverse categories.

Phase 4: Subjective Goods Purchases. Apparels, beauty, jewelry, grocery, baby & kids products, stationary are some categories whose players have started popping in Indian online retail market, where consumers purchase pattern, which ‘traditionally’ is to touch-and-feel, try,  has started to go for online buying with more informed buying decision and tools that supports it. Especially apparel has seen a good amount of traction in the industry both from consumers & merchants in recent year which is a positive shift for the industry; companies such as Myntra, Jabong, have acquired consumers who are ‘early adopters’ for their first transactions online and customers acquired in this category will tend to come back for online shopping if experience is delivered.

In India according to IAMAI about 150 million people are ready to get onto the e-commerce way of shopping based on parameters like income, education and occupation of households but still the number of people transacting online in India were less than 10 million in 2011 (Source: Avendus). Some features of etail which are attracting consumers to buy online in India are availability of product, competitive price/discounts, and convenience but Ecommerce in India has still a long way to go and can be viewed as  process of natural evolution in total, where multiple factors are favoring it slowly and steadily for a high potential consumer industry in future but  don’t miss out the challenges which are also many.

(The article draws inspiration from Zia Daniell Wigder’s Blog on Forrester)

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  1. 1

    Logistics & SCM is the main killer.
    If 10 new eCommerce startups are incubated in 7 days and launched; chances are 5 will go bust in less than 6 months owing to messy SCM and very poor to 0 Logistics Management. Have seen it happen too many times in too many companies in India – if you invest too much in it too early, you will end up like Flipkart (boon becomes a curse), if you invest too late, you will miss the bus. The correct balance is extremely difficult to find – strategically for a CEO or Board.

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    I believe that none of e-commerce market place can sustain on long term unless they cut down there operational cost, warehousing cost and same time they invest & keep upgrading technology and merchandise approval team.

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    One thing we need to look at is the education level is also increasing among the youths in India and accessing Internet on hand held devices is also on the rise. We can look forward to e commerce development in our country. I am confident it will find its place and will offer a lot of convenience to digital consumers like us

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    e-commerce in India still suck. After a cursory audit of the top 50 eCommerce sites in India, we find most of them go against basic practices in usability and user experience. It’s not just the onsite experience that needs attention, but offsite experience is seriously damaging. All the Indian crib sites and consumer forums are inundated by posts from frustrated and angry consumers.

  9. 9

    As you rightly point out, more than 80% of online commerce in India is still in the travel category. Are there any studies on the break-up of the remaining 20% of ‘non-travel e-commerce’?

    I would guess that mobile phones and books make a bulk of Indian non-travel e-commerce. It would be a wonderful day when the Indian market graduates to buying other categories (apparel, footwear, food/grocery, etc) substantially online.

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    The curve is ascending and it has already started showing tandem behavior. We have seen the similar evolution pattern that US and Europe has seen in early part of this decade. I would be keen to see conceptual models getting some ground in the indian market. It will surely help and enable other sectors such as social, mobile and so on.

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