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E-Commerce Ecosystem in India - GD PI Series for IIM-IIFT-MDI-XLRI - Part 2


E-Commerce Ecosystem in India - Part 2

Continuing from where we left off in the last session, here I will take you through the most commonly used terms in an E-Commerce setup, the Key Drivers of the rise and expansion of companies in this domain and what are the major challenges faced by them on a day to day basis.

E-Commerce Glossary:

1.       Average Order Value – Total Sales Revenue/Total Number of Orders Taken
2.       Bounce Rate - The percentage of people who visit one page on your website and leave without clicking on anything.
3.       Gross Merchandise Value (GMV) – GMV is the total value of merchandise sold over a given period of time through a C2C exchange site. This is calculated prior to the deduction of any fees or expense.
4.       Call-To-Action - An advertising and marketing concept where you give an instruction to your target audience to persuade them to take immediate action.
5.       Cart Abandonment Rate - An online shopping metric which shows the ratio of the number of abandoned shopping carts to the number of completed orders.
6.       Conversion Funnel - A Google Analytics metric which shows the series of events that your visitors follow to finally achieve conversion. It’s called a funnel because, in each event, a percentage of visitors leave your website so, at the end of the funnel where the sale happens, there are fewer users than there were at the beginning.
7.       Point of Sale - A software which enables the online store to accept transactions, manage inventory, add products, process payments and send receipts digitally.
8.       Open Rate - An email marketing term which means the number of email subscribers who open the email you sent to them.
9.       Customer Lifetime Value (CLV) - The predicted and anticipated monetary value that a customer can generate during his entire relationship (lifetime) with your online store; measures customers’ profitability
10.   Keyword Stuffing - An unethical SEO technique wherein you overload your webpage with as many keywords as possible in order to try and increase your site’s ranking in search engines.
11.   Landing Page - A single webpage appears in response to clicking on a link.
12.   Listing Fee - Some online auction websites charge this fee so sellers can list and post their products or services online.
13.   PPC Marketing - An online advertising model where the advertiser pays the organization only when his advertisement is clicked and his prospect are successfully directed to his website.
14.   SEO - An online marketing process for improving an online store’s website content to make it easier for search engine bots to index the website and hopefully enhance its ranking in search engine results.
15.   Time Lag - A Google Analytics report, this summarizes how long (in days) it took your website visitors to finally become customers.
16.   Conversion Rate - Percentage of online store visitors who transform into paying customers divided by visitors who are given the chance to fulfill it but did not.

Key Trends Driving E-Commerce in India

1.       Government Initiatives
a.       Digital India - Focuses on transforming India to a digitally empowered and knowledge economy. Three key areas identified are to (a) Build Digital Infrastructure (b)Enable Govt. Citizenship services and (c) Digital Empowerment
b.      Start-Up India - Ecosystem to nurture “Innovation” and “Exponential Start-Ups”.   Initiatives like ‘Fund of Funds’, ‘Start-Up India Hub’, tax exemption for 3 years and faster exits.
c.       Make In India
d.      Skill India
Please read about BharatNet Project, BHIM app, GST Roll Out, Udaan, Umang and Startup India Portal as well

2.       Increase in Internet PenetrationInternet Penetration in India grew from 4% in 2007 to 34.08% in 2017. Urban India with an estimated population of 444 mn has close to 60% internet penetration.

3.       Growth of Smartphone adoption driving mobile based e-Commerce Sales: The widespread adoption of smartphones is being propelled by several factors such as – high competition leading to low prices, the prevalence of Internet-enabled services and ease of accessibility to content. 65% of the people who shop online, do so through Mobile phone (IMF, World Bank Data)

4.       Modes of payment - Indian government’s initiative to extend banking facilities to its previously unbanked citizens through the ‘Jan Dhan Yojna’ scheme has added a significant number of debit cards (over 110 Million) thereby providing these customers access to electronic payments. There has been the launch of electronic wallets and also digital payment products from traditional banks for faster check-in and check-out of e-Commerce transactions. While EMIs and digital wallets account for less than 2% share currently, they will grow faster than plastic money.

5.       Logistics space witnessing partnerships with hyper-local companies and India Post - Due to challenges in terms of handling huge volumes of delivery, return orders and higher standards of customer service, the industry has seen the rise of several third-party logistics service providers (3PLs) who handle last-mile deliveries. This also enables these companies to foray into tier 2 and 3 cities. India Post with its extensive reach of 19,000 pin-codes and 1,54,725 post offices across the country has set-up dedicated processing centers to handle last-mile deliveries of the e-Commerce companies.

6.       Empowerment of MSMEs - MSMEs are characterized as a highly fragmented and unorganized sector across vast geographies but account for almost 8% of India’s GDP. With the advent of e-Commerce, many MSMEs are exploring the option of selling online and thus accessing new customers across the country. he leading e-Commerce companies are taking major initiatives to tackle some of the adoption challenges that MSMEs face:
• They are assisting MSMEs in procurement of loans, training, and integration of technology
• They are also encouraging MSMEs to engage with customers on a real-time basis by providing analytical tools for better preparedness and insights on future trends.

Challenges Faced by E-Commerce Companies:

  1. Scaling of Organizations and Profitability - B2C e-Commerce companies have raised and infused capital from investors to scale operations. However, from a profitability perspective, the losses have grown faster than sales. Majority of the companies rely on discounting for customer acquisition leading to an absence of long-term sustainable business models
  2. Counterfeit goods - There is an increasing incidence of cyber thefts and payment thefts in the industry today. Additionally, supply of fake, counterfeit products by the merchants on the platform is on a rise
  3. High Customer Acquisition Costs - Intense competition and heavy discounting has resulted customer acquisition and retention costly for e-Commerce companies.
  4. Payment Issues - Customer’s preference for COD increases chances of return and results in locking up of working capital for both the platform and the sellers.
  5. Extremely low customer loyalty - Currently customers are mainly attracted by discounts and have very little brand loyalty. Customers easily and frequently switch among platforms based on best discount offered by them. 
  6. Reverse logistics - Currently, reverse logistics is highly inefficient, which results in high inventory and increased costs
  7. Dependence on Telecom Operators for Rural Penetration  E-Commerce companies, who want to expand into tier 2 & 3 cities, are dependent on the Telecom Operators to roll out 3G/4G into such areas for connectivity
  8. Digital payment transaction failure - Due to lack of high-speed bandwidth and inefficacies in payment gateway technology, the e-Commerce industry is facing high transactions failure rates leading to customers dissonance
  9. Merchant’s lack of online experience - Small merchants are uncomfortable and unfamiliar with technology and need to be trained on the use of e-Commerce technology
  10. Network and bandwidth dependency - Access to e-Commerce platforms, through desktops, mobiles, and other devices are dependent on the network bandwidth 
About the Author - Pranav Raj has been an E-Commerce enthusiast for a long time. He did his Summer internship with Flipkart in 2016 and was the Senior Coordinator of Systemix - The Systems Consulting, E-Commerce and SMAC Club at IIFT Delhi from Feb 2016 until March 2017. 

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