Strategic Change in the e-commerce Industry

With e-commerce booming at the rate of 16% this year as compared to the growth in physical retail store domain of 1.5%, it is undoubtedly the fastest growing sector where all top retailers want to invest. Unlike in a traditional market where ‘bricks and mortar’ are usually required, any vendor that can connect to the network can sell a product to connected consumers anywhere in the world. This feature has resulted in the entry of a vast number of new players. Firms thus have a larger choice of suppliers, a larger base of potential buyers, and a larger pool of possible competitors. Consumers have fewer temporal and spatial restrictions and more choice, allowing them to conduct transactions at the time of their choosing. E-commerce has shifted the balance of power more in their favor relative to the power distribution in traditional markets.

The up up and higher aspect:

  • Start-ups are increasingly revolving around e-commerce and there is a trend doing the rounds to tap the market’s money making opportunities. Without a genuine idea and interest to build a dedicated customer following, this herd mentality can only spell disaster for investors and entrepreneurs alike.
  • With unprecedented growth in e-commerce when it comes to increasing market share, there comes the question of its real market value and net worth estimation. Flipkart has been valued at $11 billion when the truth is there are no tangible assets coming even close to that amount. Physical store retailer chains like Pantaloons, Future Group, Trent, etc are valued at $200 million, $600 million and $800 million respectively, way less than Flipkart. A growing middle class and increasing number of smart phone users might be behind the huge surge in investments in these firms. Absorbing the capital being funneled in is not an issue. The problem will arise when return on investment will be a reality. Liquidity of the companies will then become questionable.
  • The increase in sales of e-commerce giants has led to them investing more in procuring customer data, not only the customer’s name, address and phone number, but also their browsing patterns, preferences and choices, personality, etc. In such a case, the privacy of the customer has been compromised at the cost of providing more customer centric feed on their social media or apps.
  • With sales in the e-commerce domain peaking while physical stores go out of business, the unemployment ratio is bound to see a rise as new kind of jobs give way to older ones.
  • The ushering of profit margin erosion has led to a drastic downfall in the overall turnover. Even though the e-commerce firms have been expanding their market share, real profits are yet to see the light of the day. This has to stop as e-commerce is well on its way to account for most of the sales of any brand or company and low profit margins can be disastrous when it comes to sustainability of the business model.
  • Most of the e-commerce firms are hoofing it and going ahead with their strategy implementation without considering the bigger picture. With strategies and technology being constantly innovated, it becomes necessary to have a defined goal in order to align growth in that direction.

Strategies and challenges: Framework of a sustainable nature.

  • Outreach is a problem that all e-commerce firms face. 30% of India is still inaccessible. Also, broadband internet users in India are approximately 13,701,687 people, which is less than one tenth of the entire population. In such a case, the need arises for a robust system that does not rely solely on internet connectivity and affordability (increase in per capita income).
  • With logistics in hard to reach regions in Tier II and Tier III cities being a major problem, involving the residents can be a solution. People living in that area and getting back home after work can drop off parcels for a nominal fee. Not only will this add to their income, but also save the company in hiring a dedicated logistics and delivery team.
  • Emphasis on the changing demographics of the population can help the e-commerce industry grow while being profitable. The next generation buyers are essentially young people for whom the life cycle of products has considerably reduced. Thus, segmenting the market based on their needs and targeted promotions can help make sales better. Also, mass customization and building of one to one relationships with the consumer can ensure retention and loyalty provided price sensitivity issue is taken into account.
  • Gone are the days when getting information online and buying offline was the norm. Now, the attractive offers furnished by online retail websites have been successful in making the average Indian household rely on online shopping for many goods. The need of the hour is managing customer expectations. With low profit margins, customers have come to expect a certain standard of service. Also, with no sight of any real profits, the liquidity of online based firms can pose a serious issue. In such a case, regulations have to come into effect enabling a sustainable business.

Criticism for e-commerce is doing the rounds. The important thing to consider here is that proper planning, research and preparation should welcome growth and strive to enhance the customer experience. It also calls for self evaluation regarding value addition and focusing on building a comprehensive and robust strategy with detailed tasks and deadlines based on the foundation of strong credibility and liquidity while being customer centric.

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