E-comm: Time for change in focus, not conviction
The pace and trajectory of growth of the e-commerce sector in India has been breathtaking over the past three years.Poised to be worth more than $103 billion by 2020, e-commerce is scripting the next chapter in India’s robust consumption story . In the process, it has introduced dynamic new business models, spurred domestic innovation, created unprecedented choice for the consumers and massive reach for the small and medium businesses. Its impact on job creation is less spoken about, but is perhaps the most important -it has created millions of jobs, across cities big and small and spanning the entire continuum from high technology to last-mile logistics.
The digital commerce industry is at the early stages of long term growth that will continue across decades, similar to the telecom and IT revolution. As the Indian economy grows at a steady clip, growth for e-commerce will come from many fronts, increasing Internet and mobile penetration being the most important. Morgan Stanley’s India Technology Report in February 2016 indicates that percentage of internet users shopping online will grow from 12% in 2015 to 40% in 2020. Favourable demographics, growing acceptance of online payments, a supportive policy framework and improvement in physical infrastructure will accelerate this growth.
Growth when it happens at such pace, comes at a cost. This cost is largely driven by significant forward-looking investments in technology , infrastructure and people. When these investments are leveraged appropriately , they yield significant results in delivering a great customer experience in the future while driving sustainable growth for the company .
In the US, Amazon lost $2.8 billion in the first seven years of its existence before it posted its first ever quarterly profit in 2002, as they were investing ahead of time in building the required capabilities for the US market. Needless to say , not all investments made are as efficient as they could have been. However, it would be unfairly speculative to paint a picture of doom and gloom without trying to understand the deeper and more positive trends at play here.
In 2014-15, the focus was on achieving scale to demonstrate that this industry can deliver a needle-moving impact in terms of the quantum of merchandise that can be sold through the online channel.
Now that the scale and impact of e-commerce has been clearly established, the focus has turned towards achieving efficiency in operations.
This is a natural cycle for any business -rapid period of growth followed by a measured, sustainable progress.
The industry’s shifting focus from volume-driven metrics like gross merchandise value (GMV) to profitability-driven metrics like better unit economics, repeat customers and user experience, is evidence of the same. Companies that continue to lose money per order will have a tough time sustaining in this market. In perpetuity , customers will be loyal to platforms that deliver reliable and frictionless experiences.
The focus in e-commerce has to be on investing in capabilities to build for the growth coming at us down the line. The opportunity we all have is to solve for today as we build for tomorrow and for this, the three key areas that companies will need to focus on are experience, cost and growth.
Just like physical retail builds bigger and better malls, technology is the building block for digital commerce to offer a virtual experience that is better than the physical one. Key drivers of a great consumer experience -predictive analysis, intuitive product discovery , embedded digital wallets, personalised communications, social commerce, omni-channel integration -are all enabled by significant investments in technology .While sharp discounts drive traffic, ultimately it is consistently good experience that enhances conversion, builds trust and habit.
Delivering experience at any cost isn’t the hardest thing in the world. True execution capability is demonstrated when a company delivers great experience at best-in-class cost. And this entails very tightly managing the total unit cost it takes to fulfil an order from purchase to delivery . It is also very critical to manage the overall recurring monthly expenses of the company so that maximum operating leverage can be gained from a fixed cost base, while the scale increases.
Finally, driving growth while ensuring a company delivers best-in-class experience and cost is no easy task. This will need companies to sharply identify who their core user group is, across geographies, gender, socio-economic demographics and then ensuring that they deliver relevant and best-in-class experiences to this audience. In trying to be everything to everyone, companies will risk being nothing to no one.
Indian digital commerce is an interesting story in the making. Five years ago, not one among us could have predicted the scale, the speed and the impact of this sector. Built on top of the lessons learnt thus far, the next set of transformations will happen at a much faster speed.
Across the world, e-commerce platforms have taken over a decade to find their stride. In contrast, the Indian market is maturing much faster. While course corrections will indeed happen, make no mistake -we are just getting started.
Source: The Economic Times (Delhi)