eCommerce companies need to delve deeper into their analytics to figure out where the real fortune lies.

Billion dollar fail Why eCommerce firms may not find fortune at the bottom of the pyramidBy Felipe Skroski from Wellington, New Zealand, via Wikimedia Commons
Blog Blog Friday, September 16, 2016 - 08:33

By Archana Venkat

As the festival season approaches, everyone is gearing up for the grandmother of all sales in India. Amazon, Flipkart, Snapdeal. ‘Who will emerge richest among the eCommerce Big 3 of India?’ is a question that has started doing the rounds in the media spawning stories around ‘strategies’. Ever since the world got exposed to CK Prahalad’s seminal work on ‘Fortune at the Bottom of the Pyramid’, corporations appear to have slackened off from retaining or growing market share in the cities (by building brand loyalty and retaining customers) to looking for hitherto undiscovered greener pastures (eyeing prospects).

Well, there aren’t evergreen pastures. And prospects too turn into clients. This is why eCommerce giants may not be able to continue their dream run of billion-rupee-sales-a-day if they keep digging at the bottom of the Indian customer pyramid.

The Bottom of the pyramid typically refers to the masses whose purchasing power and disposable income is low. It is not restricted to rural areas. For example, the urban poor in Mumbai could still be considered at the Bottom of the Pyramid from a marketing perspective.

Ecommerce businesses globally are driven and sustained by the middle and upper classes. Studies have consistently showed that in developed markets like the US, eCommerce is driven by those who are well to do. They shop often and buy certain brands consistently. We do not yet have comparable statistics for India but I suspect we are no different.

After a decade of Flipkart’s existence in India, data shows that tier 1 cities continue to dominate in volume of ecommerce purchases. However, 45% of all Indian ecommerce transactions are paid for via cash upon delivery indicating that the average value per transaction is likely to be under Rs 2,000.  Further, only close to three out of every 100 people who visit ecommerce sites buy something (much lower than the 30-40 people out of 100 who visit physical stores in malls and end up buying products). Each customer is likely to place not more than four orders a year, making these folks very, very occasional shoppers. Three years ago they barely made one purchase a year. Why continue to focus on them when there is a ready market of savvy folks waiting to be nurtured?

Customer loyalty does not seem to be the focus. B2C firms have traditionally been unable to focus on customer loyalty, citing lack of data. P&G, for example, doesn’t know what I think of their detergent or whether I even buy it. This is what eCommerce companies built themselves on when they started – understanding what customers wanted and offering them those items through attractive deals. Repeat purchases could be made (at least theoretically) by sending offers to clients on the basis of the items they had previously purchased. However, increasingly, these ‘exclusive offers’ no longer make sense.

After ordering groceries on Friday, a Monday morning offer discounting the price of potatoes is unlikely to get me to place another order. As a customer buying from the same portal every week for the last 3 years, I could have been offered the same deal while placing the order on Friday itself.

In another example, the company knows I have been buying 100% juice from brand X. Why would an offer on regular sugar laden juice entice me? If you are offering a substitute, at least offer a close match. If I have been consistently viewing handbags of a particular company every day for about a fortnight, what stops the company from giving me an exclusive flash discount of 50% if I purchase the item in the next 1 hour? If eCommerce companies cannot do any of this, how different are they really from the kirana store next door who gives home delivery?

What is the real eCommerce differentiator?  - Convenience, price, and range of products are no longer differentiators but have become pre-requisites to attract shoppers. I don’t count experience as a differentiator because most sites (except specialist ones like say those offering lingerie) increasingly look and feel the same and so do the delivery folks who bring my order home. Amazon calls itself a ‘dukaan’. Maybe that is the reality. They could be as dispensable as the kirana store next door.  As a child, our neighborhood grocer was so popular that his shop was a landmark. ‘Behind Maharaja Departmental stores’, ‘Second right from Maharaja departmental stores’, and ‘opposite Maharaja departmental stores’ were all mentioned as part of people’s postal address. Today I have moved cities and Maharaja stores is replaced with Aishwarya Stores and maybe occasionally Amazon also has some mindshare. But there is a world of difference.

Aishwarya Stores does home delivery, stocks the brand of curd chillies distinct to my native region, throws in a freebie every time my child visits the store and asks about our family’s wellbeing before billing my order – even if the order is for just one item.  Of course, unlike the eCommerce Big 3 that hound me every time I open a web page by showing items that I saw previously but did not buy, the chaps at Aishwarya stores will smile benignly if they see me returning from another department store with vegetables. At most, the next time I visit, the guy will gently let it slip that he is now getting fresh vegetables thrice a day and I shouldn’t worry about quality.

Theoretically a billion-rupee-sale can come from targeting 1 lakh customers each of who buy goods worth Rs 10,000 or by targeting 10 lakh folks who can buy goods worth Rs 1000. But in reality, there is a huge difference in the nature of sales and quality of customers in both cases. eCommerce companies perhaps need to delve deeper into their analytics to figure out where the real fortune lies.

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