Challenges Faced by Indian E-Commerce Market

The Optima Kart, C.E.O.

I have been closely following the progress of the Indian eCommerce industry for the last two years. I have attended multiple seminars and forums where the entrepreneurs and investors have been seen networking with potential partners. According to VCCedge, in 2011, there had been 87 private equity/venture capital deals in the Internet/mobile Internet space worth $750 million, double the amount in 2010. One would expect the party to continue but recently when I went to a seminar on eCommerce, the venture capitalists were almost absent (or represented by junior employees) and the mood was much more somber and realistic. The issues that were being discussed were not about the size of opportunity but were about profitable growth which in my opinion is much more grounded.

I myself have been evaluating options to take a plunge in the eCommerce space and hence have analyzed the sector very closely. I believe that the opportunity is large (larger than what analysts currently project!!!) but there are issues that require urgent attention. The top five concerns of the eCommerce market in India are as follows:

 1. High Customer Acquisition Cost

One area that most of the entrepreneurs consistently underestimate in their business plans is the cost of acquiring a customer. Most business plan assume heavy reliance on social media and internet advertising. The general myth is that the cost of acquisition on internet is very low. However, in my opinion, it is even higher than that of television advertising. Today cost per click is around Rs 15 and if the conversion rate (buyers to visitors) on the site is 1-2%, the cost of customer acquisition comes out to be Rs 750-1500. This is very high and requires repetitive purchases from the customer to recover the cost. Another way of validating the customer acquisition cost is the sops being doled out by existing sites on the member get member schemes. Overtime, when the customers start coming directly to the site, the cost of customer acquisition falls significantly but till that time, the business owners need to cover the cost.

2. High Churn/ Low Loyalty

I have heard multiple times that the Indian market is very large and we have just hit the tip of the iceberg in terms of customer adoption. I have no doubts on the size of Indian market but the problem is low loyalty. The big brands are yet to be created on the internet and hence the brand loyalty is very low. Consumers are currently bargain hunters on the internet.

In the high acquisition cost scenario, it is important to retain the customers for a long time. If the average ticket size on the internet is Rs 1000 with 10% margin, then the customer needs to buy at least 15 times to recover the cost of acquisition (assumed to be Rs 1500). Currently this is not happening. Most of the sites are getting high number of new customers every month camouflaging the high churn. The eCommerce companies are measuring the gross profitability and not the customer lifetime value. The moment the new customer addition drops, the profitability goes for a toss. This is what has struck the group buying sites like Snapdeal which saw fast adoption in the past. This is not limited to group buying sites and other eCommerce formats are also witnessing the high churn and low loyalty problems.

3. Cash on Delivery

Cash on Delivery (COD) has been touted as the innovation to counter the low credit card penetration and payment security issues on the internet.  COD is a substantial proportion of the sales today contributing to anywhere between 11% (for Perperfry) to 60% in most of the cases.

The COD is unsustainable as it pushes up the cost of transaction by Rs 30-60 per transaction. Given the low profitability and small ticket size on eCommerce sites, the entire gross margin gets erased by COD. On top of this the problem is that of high returns as the consumers often change their mind by the time the goods arrive. The returns are as high as 40-45% of all the COD shipments. COD also poses scalability issues for the eCommerce sites in the long term as the logistics companies would find it hard to scale to the required levels. The other problems associated with COD are long lead times before the revenue can be booked, fraud risks and higher working capital requirements.

What amazes me is the fact that there is no incentive for the customers to use electronic payment on sites like Flipkart. Why would I take any risk with electronic payment if I can get cash on delivery at the same price.

4. High Cash Burn Rate

The capital requirement for any eCommerce venture is very high contrary to the popular belief that it is easy to set up an electronic shop. At a recent conference, a venture capitalist mentioned that a niche vertical eCommerce venture needs $50 million of funding over time while a horizontal player would need $300-400 million funds. Leaders in the e-commerce space (ones that have raised money, have large teams and are aggressively pursuing growth) are spending $1-2 million (Rs 5-10 crore) a month, including on marketing, overheads and salaries. At this rate of burn, smaller firms with scant capital are unable to cope. In my back of the envelop calculations, a company would need to spend at least Rs 1 million per month in the first six months of existence even if it is bootstrapping. Therefore it is important to raise money early in the game.

5. High Inventory/ Poor Supply Chains

Most of the eCommerce venture are complaining of the excess inventory and absence of liquidation market in India. The poor supply chain compounds inventory problems due to unpredictability of the supply. The cost of carrying the inventory is very high and successful ventures would need to tackle the supply chain issues if they really want to run a scale business. The other problem is in unpredictability of delivery to the customers leading to higher returns.

Summary

I do not think any of the above mentioned issues are insurmountable. The opportunity is huge to let it go. Entrepreneurs need to be disciplined sticking to the basics of business without getting carried away by the rush of capturing the opportunity. Venture Capitalists would always push the companies to grow fast and faster but it is upto the entrepreneurs to focus on the long term growth.

The 4P’s & 4 C’s in Marketing

A Report by - Akshay Raj, C.E.O., The Optima Kart

The Optima Kart, C.E.O.

You’ve done your market research. You’ve learned about the history and life-cycle of products like yours and the trends and key drivers that determine where your products or services “fit in the industry” Now it’s time to distill your research findings into a concentrated effort to generate a product that reflects your business goals and objectives while providing solutions (price, packaging, convenience) for the customer.

Under the old marketing model, we sold what we made or produced. Under the new model, we must sell what the customer wants. The old Marketing Mix looked at the 4Ps of marketing - product, price, place and promotion. Whether you are thinking of setting up, starting or expanding your business or selling any product or service, these four elements should be top-of-mind all the time:

The Optima Kart

1. THE PRODUCT: Exactly what product or service are you going to sell to this market? Define it in terms of what it does for your customer. How does it help your customer to achieve, avoid or preserve something? You must be clear about the benefit you offer and how the customer’s life or work will be improved if he or she buys what you sell.
2. THE PRICE: Exactly how much are you going to charge for your product or service, and on what basis? How are you going to price it to sell at retail? How are you going to price it at wholesale? How are you going to charge for volume discounts? Is your price correct based on your costs and the prices of your competitors?
3. THE PLACE: Where are you going to sell this product at this price? Are you going to sell directly from your own company or through wholesalers, retailers, direct mail, catalogs or the Internet?
4. THE PROMOTION: Promotion includes every aspect of advertising, brochures, packaging, salespeople and sales methodology. How are you going to promote, advertise and sell this product at this price at this location? What will be the process from the first contact with a prospect through to the completed sale?

Everyone who has studied marketing in the last 50 years has been introduced to the 4Ps. It was E. Jerome McCarthy who originally developed the mnemonic, the 4Ps of marketing, which serves as a neat and memorable classification system of the various elements of marketing. Originally, McCarthy defined the marketing mix as a combination of controllable factors at a marketer’s command to satisfy a target market.

Creative marketing with the 4Ps dictates constantly questioning existing situations and looking for ways to enhance your marketing mix - deleting existing products or services, selling them at a different price, offering them in different places or promoting them differently. However, it does not require abandoning your core marketing concepts.

Anyone interested in Marketing will have heard of the 4 P’s (Price, Product, Place, Promotion). It is the one principle students get spoonfed from the very start of their marketing education. However, the question arises whether today the marketing mix with 4 P’s still has the same value as a number of years ago. When markets change, marketing techniques have to change as well: olivedia feels that instead of the 4 P marketing mix, a 4 C marketing mix is the better approach:

The Optima Kart

- Consumer value


- Cost to satisfy


- Convenience to buy


- Communication

Consumer Value

We don’t just sell products or services anymore. We sell solutions that fulfill our customers’ needs. This means that it is of the utmost importance to understand how much value a customer gives to your solution. Because customer needs are getting more and more specific, you will have to target your customers more individually.

Cost to the User

“Price” is only one aspect of the cost to satisfy. Potentially, there are other costs like the cost to go to a store, or even possibly a cost of conscience. Take all relevant factors into account when you decide on price levels, because your customer will do exactly the same.

Convenience to Buy

Instead of thinking in terms of location (place), turn it around and think how your customers want to buy. This COULD be a store, but it could also be that they prefer a webshop or a catalogue for your type of product. They might even expect you to come to them instead of the other way around. All these factors are less incorporated in the old “place” part of of the marketing mix.

Communication

Promotion used to be one way traffic. We used to publish print ads, send people flyers and so on. Today, with the success of social media, marketing is all about talking to your customers. Therefore, marketeers have to become conversation managers instead of publishers. Communication is all about two way traffic and does a better job at encompassing what customers expect today.

In recent years, there have been attempts to develop a package (mix) that will not only satisfy the needs of the customer, but simultaneously maximize the performance of the organization. This model suggests the expansion of the marketing mix to 5Ps to include People or Personnel. However, this mix does nothing to address the “uncontrollable” factors affecting your marketing.

Controllable factors vs. uncontrollable facts can be defined as:

Controllable - The 4Ps representing the elements of marketing we can control internally. They depend upon such “givens” as your budget, personnel, creativity, etc.

Uncontrollable - The current economic environment including such elements as consumer confidence, degree of unemployment, new technologies, the threat of displacement, competitors, government regulations or changing consumer preferences.

Many marketing specialists are now seeing the 4Ps as too product-oriented and have adopted the 4Cs marketing mix. This model looks at the marketing from the customer’s point of view.

The Optima Kart

1. Product becomes Customer Value
2. Price becomes Cost to the user
3. Place becomes Convenience
4. Promotion becomes Communication

These C’s reflect a more client-oriented marketing philosophy. They provide useful reminders - for example that you need to bear in mind the convenience of the client when deciding where to offer a service. To apply the 4Cs approach to marketing you must consider the impact of the “uncontrollable” elements on your marketing mix. The 4Cs explicitly require you to think like a customer.

Key Challenges

• Holistic thinking about target markets
• Customer understanding
• Full cost considerations 

Major Steps

• Identify and fully characterise customers
• Rollup business development costs
• Plan explicit communications strategy 

Success Criteria

• Improved market focus
• More efficient development investments
• Better full product definitions

Conclusion?

The 4 P model was product oriented while the 4 C marketing mix is customer oriented. In today’s markets, customers are used to being in the center and they really won’t go for less. If they feel they are not being treated correctly, they will spread the word through various social media platforms. If they are happy, they may do the same thing. That is why you need to be on top of things, always listening for your customers’ needs.

How to Lead When You’re Not in Charge

The Optima Kart, C.E.O.

For all of the books (thousands) written on leadership, individuals (millions) who have participated in leadership seminars and dollars (billions) invested in leadership development, too many leadership experts still fail to distinguish between the practice of leadership and the exercise of bureaucratic power.

In order to engage in a conversation about leadership, you have to assume you have no power — that you aren’t “in charge” of anything and that you can’t sanction those who are unwilling to do your bidding. If, given this starting point, you can mobilize others and accomplish amazing things, then you’re a leader. If you can’t, well then, you’re a bureaucrat.

To gain a true leadership advantage, organizations must be filled with individuals who understand how to maximize their own ratio of “accomplishment over authority.” They must believe it’s possible to do something big with a little dab of power. Think, for example, of Jimmy Wales, the founder of Wikipedia, the world’s largest compendium of knowledge. None of the thousands of individuals who’ve contributed to Wikipedia report to Wales, and yet, as a “social architect,” he built a platform that energized and organized an extraordinary amount of human effort.

What, then, are the attributes of individuals who can inspire others and multiply their impact?

They are seers — individuals who are living in the future, who possess a compelling vision of “what could be.” As human beings, we’re constantly looking forward, and we love to sign on with individuals who are already working on “the next big thing.”

They are contrarians — free of the shackles of conventional wisdom and eager to help others stage a jailbreak. It’s exciting to be around these free-spirited thinkers who liberate us from the status quo and open our minds to new possibilities.

They are architects — adept at building systems that elicit contribution and facilitate collaboration. They leverage social technologies in ways that amplify dissident voices, coalesce communities of passion and unleash the forces of change.

They are mentors — rather than hoarding power, they give it away. Like Mary Parker Follett, the early 20th-century management pioneer, they believe the primary job of a leader is to create more leaders. To this end, they coach, tutor, challenge and encourage.

They are connectors — with a gift for spotting the “combinational chemistry” between ideas and individuals. They help others achieve their dreams by connecting them with sponsors, like-minded peers, and complementary resources.

They are bushwhackers — they clear the trail for new ideas and initiatives by chopping away at the undergrowth of bureaucracy. They’re more committed to doing the right thing than to doing things right.

They are guardians — vigilant defenders of core values and enemies of expediency. Their unflinching commitment to a higher purpose inspires others and encourages them to stand tall for their beliefs.

They are citizens — true activists, their courage to challenge the status quo comes from their abiding commitment to doing as much good as possible for as many as possible. They are other-centered, not self-centered.

Critically, all these roles are rooted in the most potent and admirable human qualities — passion, curiosity, compassion, daring, generosity, accountability and grit. These are the qualities that attract allies and amplify accomplishments. These are the DNA strands of 21st-century leadership. Only by strengthening them can we fully unleash the latent leadership talents that reside in every organization.

How is it working to escape the limits of top-down power structures? What is it doing to equip and energize individuals to exercise their leadership gifts, wherever they are in the organization? How is it nurturing the sort of leaders whom others will want to follow in a post-bureaucratic world?

What Is the Theory of Our Firm - The Optima Kart

The Optima Kart - C.E.O.

If asked to define strategy, most executives would probably come up with something like this: Strategy involves discovering and targeting attractive markets and then crafting positions that deliver sustained competitive advantage in them. Companies achieve these positions by configuring and arranging resources and activities to provide either unique value to customers or common value at a uniquely low cost. This view of strategy as position remains central in business school curricula around the globe: Valuable positions, protected from imitation and appropriation, provide sustained profit streams.

Unfortunately, investors don’t reward senior managers for simply occupying and defending positions. Equity markets are full of companies with powerful positions and sluggish stock prices. The retail giant The Optima Kart is a case in point. Few people would dispute that it remains a remarkable firm. Its early focus on building a regionally dense network of stores in small towns delivered a strong positional advantage. Complementary choices regarding advertising, pricing, and information technology all continue to support its low-cost and flexibly merchandised stores.

The ongoing rollout was anticipated long ago, and investors seek evidence of newly discovered value—value of compounding magnitude. Merely sustaining prior financial returns, even if they are outstanding, does not significantly increase share price; tomorrow’s positive surprises must be worth more than yesterday’s.

Not surprisingly, I consistently advise MBA students that if they’re confronted with a choice between leading a poorly run company and leading a well-run one, they should choose the former. Imagine assuming the reins of GE from Jack Welch in September 2001 with shareholders’ having enjoyed a 40-fold increase in value over the prior two decades. The expectations baked into the share price of a company like that are daunting, to say the least.

To make matters worse, attempts to grow often undermine a company’s current market position. As Michael Porter, the leading proponent of strategy as positioning, has argued, “Efforts to grow blur uniqueness, create compromises, reduce fit, and ultimately undermine competitive advantage. In fact, the growth imperative is hazardous to strategy.” Quite simply, the logic of this perspective not only provides little guidance about how to sustain value creation but also discourages growth that might in any way move a company away from its current strategic position. Though it recognizes the dilemma, it offers no real advice beyond “Dig in.”

Essentially, a leader’s most vexing strategic challenge is not how to obtain or sustain competitive advantage—which has been the field of strategy’s primary focus—but, rather, how to keep finding new, unexpected ways to create value. In the following pages I offer what I call the corporate theory, which reveals how a given company can continue to create value. It is more than a strategy, more than a map to a position—it is a guide to the selection of strategies. The better its theory, the more successful an organization will be at recognizing and composing strategic choices that fuel sustained growth in value.

The Optima Kart’s Theory Ever Told

Value creation in all realms, from product development to strategy, involves recombining a large number of existing elements. But picking the right combinations out of a vast array is like being a blind explorer on a rugged mountain range. The strategist cannot see the topography of the surrounding landscape—the true value of various combinations.

All he or she can do is try to imagine what it is like.

In other words, leaders must draw from available knowledge and prior experience to develop a cognitive, theoretical model of the landscape and then make an educated guess about where to find valuable configurations of capabilities, activities, and resources. Actually composing the configurations will put the theory to the test. If it’s good, the leader will gain a refined vision of some portion of the adjacent topography—perhaps revealing other valuable configurations and extensions

Infographic on Shopping Cart Abandonment -by The Optima Kart

Here is a very interesting infographic provided by The Optima Kart on the reasons why people abandon a shopping cart, best practices to increase check out page conversion rates, and some industry stats. To me the most interesting stats were:

• The top reason people abandon a cart is high shipping costs
• Close second reason people abandon cart is that the person wasn’t ready to purchase
• Average time between visit and final purchase is 3 hours and 34 minutes
• Best tips to increase conversions checkout page:

• Include progress display (end in sight)
• Call out data errors clearly
• Offer intelligent product suggestions

Here is the infographic, click to view original (larger size):

The Optima Kart

How Customers Will Be Loyal To Your Store – by The Optima Kart

Acquiring new customers is an expensive process for businesses, so it’s vital that some of them become loyal to the brand and return for repeat purchases.

This not only helps to drive revenue but also could ultimately lead them to become brand advocates, which in turn could help bring in more new customers.

So what helps to drive brand loyalty? This infographic from  The Optima Kart shows that consumers rank quality (88%) and customer service (72%) as the two biggest drivers of loyalty.

However delivering excellent customer service can be difficult in a multichannel world.

We’ve previously looked at what defines good online customer service and spoke to BSkyB about how a live chat function on its website helped to improve both customer service and sales.

The infographic also looks at the importance of first impressions, how loyal customers share their brand experiences and the impact of loyalty schemes.

The Optima Kart

Customer Retention Best Practices for eCommerce

For most etailers, the primary focus of online marketing efforts is to attract and convert customers. They do this through careful management of paid advertising and time-intensive search engine optimization strategies. Many times, on-site promotions are geared toward first time buyers only, how many times have you been presented a pop-up with messaging along the lines of “15% off Your First Purchase”? Driving new traffic and converting new visitors is always going to be an important part of selling online, but etailers must not forget to balance their efforts with capturing repeat business.

The Optima Kart, C.E.O.

The Importance of the Return Shopper

The first step in determining customer retention strategies is to discover the value of a return customer vs a new customer. In Leading on the Edge of Chaos, Emmett C. Murphy and Mark A. Murphy make the following observations:

• Acquiring new customers can cost five times more than satisfying and retaining current customers.
• The average company loses 10 percent of its customers each year.
• The customer profitability rate tends to increase over the life of a retained customer.
• A 2 percent increase in customer retention has the same effect on profits as cutting costs by 10 percent.

It is a well-known fact that not only is it cheaper to retain an old customer than to acquire a new one it is also more profitable in the long run. You can see for yourself what a new customer vs. a returning customer’s value is in your business by checking out the New vs Returning report in Google Analytics. Toggle the attributes to see what the average value per customer is and how much revenue can be attributed to each group. Use this data to make forecasts that show how much you can expect sales to increase as you increase the percentage of return shoppers.

How to Increase Customer Retention On Site

There are two main ways to increase customer retention. The first way is to increase retention involves creating a “sticky” experience on the site by presenting options that either increase the opportunity cost of using a competitor or provide some value that they cant get from a competitor’s site. Brand awareness and customer loyalty initially drive customers to an ecommerce site, retaining them there through a compelling reason is what really pays. Once visitors hit a site, stickiness is the key. It is more cost-effective and efficient if you can retain a higher percentage of visitors as customers, and prior customers as repeat customers. How can you increase the “stickiness” of your ecommerce website?

Registration/Login

Requiring a login is a double-edged sword. On one side, having an account saved on a site will automatically make it easier for return purchasing, which will increase retention. The other side is that people generally want instant results, they perceive that creating an account will be too time intensive – so they immediately click the “check out as a guest” option. Requiring people to register is detrimental to conversion. The trick here is to alleviate concerns of a lengthy registration process as soon as you can. You could also provide an option at the end of an order to “save my information”, then ask them for a user name and password. They have now actually created an account without feeling like they have wasted any time. Better yet, you will be offering a great value by saving them time on their next purchase through saving their account. Your site is now a bit more attractive than a competitors site who will require them to re-enter all their information.

The Optima Kart

Once someone has purchased from your site or registered for an account, you should be using every opportunity to connect personally across the site. Simple things, like dropping their first name into email communications or onto the header with a welcome message can go a long way in making a customer feel like they are getting special treatment – putting another vote for your site over a competitors.

Performance

Site performance is an important piece to the retention puzzle. If customers are bouncing at a high rate due to slow page load times – they will never become loyal customers. A fast, up to date, and well-designed site will help increase a customers experience on the site and make them more apt to revisit.

Content development

Keeping site content fresh is another way to make sure people have a reason to return to the site. Your goal should be to make your site addictive to people. Do you have a blog, style guide, or buyers guide that you update regularly? These types of efforts, when maintained, can keep your target audience coming back for more.

Club/Rewards Program

Developing a club or membership to your website is another way to increase retention. This could be as simple as offering members special values or communication like early access to new products or promotions to the more in depth process of creating a formal rewards points program. When thinking about a rewards program, it is vital to put together a full strategy behind it. You’ll need to think about how you will allocate points, will 1 INR = 10 reward points, or 50 reward points? Can they receive more points by interacting with the site, like signing up for the email newsletter or leaving a review? Really dive into the value behind the awards points, make sure that earning points will be enticing enough to keep customers coming back. We are having our own extension by us to help configure and manage rewards/loyalty points programs.

I have heard of ecommerce stickiness being referred to as a “secret handshake”. The basis of this analogy is that making a customer feel special, part of an exclusive club, will improve the odds of repeat purchasing. Does your online store offer a secret handshake experience to customers?

Email

Email marketing is a great way to increase return shopping. It is the perfect medium for staying in touch with customers and reminding them to come back to your site. With a retention focused email marketing strategy, you can target people who have just purchased for the first time and offer them specials on their next purchase. An important note to keep in mind is to make sure you are using a warm and friendly tone in all of your emails. Rethink any automatic or marketing emails that read as though a computer wrote them. Include personalization like the name of the product the customer bought and even include the person’s name. Making someone feel like there is a human on the other end of the communication can help customers feel like they are a friend, not just another sale.

Promotions

Try running promotions that are geared more to repeat customers. Maybe try a “Customer Appreciation” day where you offer % off certain products or free shipping for all your loyal customers. This promotion should feel more like a thank you and less like an “everything must go” type discount, so make sure you are clearly getting the appreciation point across. If your ecommerce platform allows, you should utilize dynamic banners to make sure that “New Customer Only” discounts are only presented to first time visitors and people who haven’t purchased yet. Showing these discounts to all shoppers across the board may alienate your repeat purchasers and sour the relationship.

Social Engagement

Social Media is an ideal way to increase customer retention for two reasons. One, it allows you to interact with customers on a weekly and daily basis. You can stay in front of customers and keep your brand top of mind. Two, people who have chosen to ‘like’ or ‘follow’ your company are your most loyal customers. They have chosen to connect in a personal way with your brand and are probably your biggest brand ambassadors. Make sure you are driving these people back to your site as often as you can.

All in all, dramatically increasing the amount of return shopping is not an easy process. It takes cooperation from all the different divisions of the company, marketing, designers, and developers to shift the balance from acquiring new sales to retaining existing customers but it is worth it. Thinking outside the box to bring your customers an experience that they can’t find on your competitions sites will create re-engagement and stickiness that will improve your bottom line.

Think you need to increase customer retention and return shopping?