Global e-commerce industry is growing at a scorching rate and is expected to keep growing at a strong pace in foreseeable future. Indian online shoppers buy across a number of categories including Books, Mobile & Electronics, Fashion and Home Décor. Mobile and Electronics, however, remains the largest selling online category in the country. In fact, as per a recent report by Accel Partners, it accounted for 53% of the GMV in 2013 (even though accounting for only 19% of the transactions) on back of high value transactions.
Reasons for people buying gadgets online
The biggest reason for Mobile and Electronics being the largest category is that these are all standardized products wherein there is no requirement of touch and feel like Fashion and Home Décor. Once the user selects a model then she can buy from the online store selling at the lowest price.
There are a large number of price comparison portals in India which help the user in finalizing a model (through feature comparison) and then help compare prices of the selected model across online stores. The other benefits of online shopping such as convenience of buying from home and lower prices also apply to this category.
Thin margins but high volumes
Even though, the percentage margins are slim in this category, it offers high volumes with relatively low SKUs required. Additionally, it acts as the gateway to online shopping for new customers. Once the customer gets satisfied with buying these standardized products online; he/she then ventures into other high margin categories such as Fashion. Thus, it makes perfect sense for any horizontal retailer to sell these categories in spite of the thin margins.
In fact, a large number of portals in India such as Flipkart have made a transition from standardized to non-standardized products as their customers got comfortable with the product quality and service levels.
A significant percentage of the habitual online shoppers buy gadgets online
Even though 51% of the survey respondents reported buying gadgets/accessories at least once a quarter; around 49% of the respondents reported that they have never or have rarely bought gadgets online which is a bit surprising since Mobile/Electronics is the most popular category in online shopping. In fact, this market is expected to grow at a fast rate on back of the strong expected growth in smartphone market (a significant proportion of which will be sold online).
Main reasons for not buying gadgets online
1) Risk of getting fake products: The biggest reason cited for not buying gadgets online was the risk of getting fake/rejected material delivered; this is a historical problem in India due to our prior experiences with fly by night operators. The first batch of online sellers that operated before 2005 had a fair share of dubious businesses.
However, the same should get solved with the long term commitment of the leading e-commerce portals and huge marketing campaigns run by all the major e-commerce companies across channels. This new crop of e-commerce companies including Flipkart and Snapdeal is inherently different from the businesses that operated a decade back. The focus of all these players is to create huge value and maintaining a strong brand and high service levels is important for them to provide any kind of return to their investors.
2) Warranty issues: The second problem (cited by 38% respondents) was the uncertainty regarding the availability of warranty on products bought online. This problem, was in fact, accentuated by a number of companies such as Nikon and Lenovo coming up with advisories for their customers that complementary warranty might not be available on cameras and laptops bought online. This step was taken as a number of sellers on online marketplaces are not authorized sellers and acquire products from grey markets and then sell online.
3) Lack of instant gratification: The third largest reason cited was that the customers wanted instant gratification which is available on offline purchases; the online stores, however, are increasingly taking care of this customer segment. In fact, Flipkart just launched Flipkart First (similar to Amazon Prime in US).
These are all potent issues; however, the increasing popularity of online shopping in India should help the leading players solve these as their scale grows.
Indian e-commerce has just started to show its true potential and there is still a long way to go. The market size is just USD 1.8 Bilion USD as compared to Chinese market size of USD 106 Billion. There is a huge room of growth on back of increasing internet penetration and increasing comfort level with online buying. It is, however, upto the leading Indian players to convert this potential into reality through reducing the friction points and maintaining high customer service levels.
About the author: Deepak Jain is an IIM Ahmedabad alumni and currently, the CEO at product aggregation and cashback website Baggout.com. This article is based on a survey conducted by Baggout amongst its users.
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