Customer Value – Explored,
2
Created, Communicated &
CASE
Delivered
Related to India’s e-commerce
Market
“Innovation is whatever brings value to the consumer—it takes many forms, sometimes it’s a
breakthrough in technology and sometimes it’s just about thinking different in the way we approach
problems” says Andrew Garrihy, chief marketing officer for Western Europe at Huawei.
INDIA’S E-COMMERCE SPACE
India’s e-commerce space today is mainly dominated and defined by 2 players—Flipkart and
Amazon. Flipkart is the fashion leader. After acquisition of Myntra and Jabong, Flipkart commands
more than two-thirds of India’s fast growing online fashion retail market. Amazon is the tech
power. Over 20 years of learnings in technology and online retail business has resulted in faster
execution and fewer mistakes. Amazon excels in providing powerful search and recommendation
engines to users. India’s apparel and lifestyle market is worth $70-billion, and currently only 2% of
that is online. Ac- cording to a recent Google report, the sector is expected to scale up to $35 billion
by 2020, growing at four times in the coming years. The report also states that fashion will outstrip
consumer electronics as the largest online retail category, accounting for about 35% of consumers’
total online spending by 2020.
How big is online fashion?
More women in India will takeApparel will continue to be the
to shopping online in the nexttop category for women shoppers, few years,
increasing formwhose share of online spending on
apparel will increase from
15
Million in 75 2015 20% Lifestyle products
2015 Million in will overtake
2020 42% consumer
2020
electronics as the
largest online
retail category by
2020. The life-
style category is
Every Fashion account for Annualised gross expected to drive
second 20% of the online sales of fashion on in
search on retail market and will products will reach three purchases
Google is grow to 23-25% over $3.6 billion by 2020.
related to the next year. In terms $3.8 billion by the
fashion of revenue, the share end of this year,
of fashion in online boosted by 30-40%
retail is 35-40% due growth during the
to high margins festive season.
SOURCES: AT KEARNEY-GOOGLE REPORT AND RIDSEER CONSULTING
The outliersYearCapital raiseInvestorsDifferentiation
Smaller online fashion marketplaces that came around when Jabong was established
in 2012 have built their own USPs and corpora of funds
Voonik 2013Limeroad 2012 Craftsvilla 2011
Sequoia CaptialTiger Global Beenos BeenextMatrix Ven-
$ 50 ture Partners
Sequoia Captial
$54.5
Million Nexus Ven- Million
Lightspeed User-generated ture Partners Ethnic and
$ 25.5 Million
Venture styles and Lightspeed handcrafted
Personalized style Venture
Partners scrapbooking fashion and
recommendation Partners accessories
Customer Value – Explored, Created, Communicated & Delivered 2.2
THE GROWTH STORY OF FLIPKART AND E-COMMERCE IN INDIA
For a vast multilingual nation like India, building an e-commerce company was indeed a tough task
for Flipkart. Some of the factors like weak infrastructure, myopic bureaucracy, and above all, an
ingrained distrust of the merchant class made the task even more challenging.
The Bansals, the founders of Flipkart were confident on one thing, that India was ready for e-
commerce. The country’s highly fragmented retail sector, mostly ruled by mom-and-pop stores
with poor services were the major problems identified by Bansals which had the potential to get
converted into opportunities for building up a new business in 2007.
Flipkart found the right gaps in the market and offered relevant products and services that fitted
those areas perfectly. Finding that few Indians use credit cards, Flipkart pioneered cash on delivery.
In Mumbai, it deployed dabbawallas, the famed lunch delivery network, to get packages to
customers. Its pledge to take back unwanted goods for a full refund was a big propeller. Two of its
strongest ethos of customer-friendliness and genuineness of its products connected very well with
the Indian consumers. The company added third-party sellers to its platform and set up its own
logistics company, Ekart in 2009, with warehouses and an army of delivery personnel. By 2011,
sales had reached $100 million, and very soon Flipkart was seen in different categories—sports
equipment, electronics,
baby goods and more.
In 2012, sales in the Indian e-commerce market were estimated at $1.6 billion. Flipkart, Jabong
& Myntra, all home-grown players were leading the Indian e-commerce market at that time.
Some of the major tactics which helped these players to gain market share in the Indian market
were cash-on-delivery payments, liberal return policies, free or subsidised shipping and in-house
logistics. Since its founding nine years, Flipkart has become the nation’s most valuable start-up
which introduced online shopping to the Indian masses.
Amazon launched its Indian website on June 5 th, 2013 with the third-party marketplace model
instead of selling directly. This forced consolidation in Indian market and Flipkart acquired the on-
line clothing retailer Myntra in 2014 followed by Jabong in 2016. This deal further strengthened its’
number one position in the fashion and lifestyle e-commerce category with an estimated market
share of 60-70%.
In this hyper competitive market, consumer is having last laugh and is being pampered with
choice, service and experience. Each player is continuously forced to innovate and take steps
steps that add value to its consumers in a “real and meaningful way”. Stuart Eames, Operational
Improvement Manager at Waitrose put it very well “If you don’t evolve, if you don’t do something
better or different to the competition you end up not being around.”
CHANGING MODELS OF BUSINESS ENHANCING VALUE
The online stores from the inventory model moved to third-party marketplace model where
independent merchants in their network sell products directly to shoppers. It turned out to be a
viable way to work in order to overcome the problems posed due to poor logistics and high
costs of inventory. Further movement has come in when many online commerce companies
have now started venturing into the hybrid model of running online stores with selective
physical presence.
Customer Value – Explored, Created, Communicated & Delivered 2.3
Global e-commerce giant Amazon in 2016 opened a brick-and-mortar store in New York. In
India, players like furniture e-tailer Pepperfry and eyewear seller Lenskart have explored the offline
route as well.
E-tailers are under pressure to grow profitably and hence, Fashion e-tailer Myntra has
created “top-selling” outdoor lifestyle brand, ‘Roadster’, which has a current sales of K600
crore, contributing 8% to the overall revenue and expected to reach sales of K1,000 crores by
2019. Seeing this kind of growth potential of this brand, Myntra. in association with one of
its franchise partners, has in March 2017, launched the first retail store for its private label
Roadster in Bangalore.
COST EFFICIENCIES ON VALUE CHAIN
New companies indulge in market expansion activity and have high spent in the initial period
hoping for future gains resulting in negative cash flow (known as burn rate). In a bid to acquire
maximum customers, Flipkart indulged in aggressive spent on marketing and discounts, biggest
being in October 2016 “Big Sale”, resulting in its burn rate at its highest two years ago. As of 2017,
its burn rate is said to be $40-50 million per month, according to industry estimates. Flipkart
successfully lowered its burn rate by 5-10% every quarter in 2016 and wants to sharply accelerate
this process.
The board has asked Flipkart to bring down the burn rate to one-fourth by March 2017 and
is forcing Flipkart management to think differently to grow and to streamline its operations. The
company also decided to slash the budget of Myntra by about 10% and re-allocate these funds to
itself to fight the ongoing war against Amazon. To ease its cash crunch situation, Flipkart plans to
save $150-200m by Dec 2017 and is also in talks with Walmart stores for investment of $1b. At the
same time, Amazon’s Chief Executive Officer Jeff Bezos pledged in June 2016 to invest another
$3 billion in his company’s Indian operations, bringing the total to $5 billion, which definitely
sounds a big threat to Flipkart, the home-grown e-tailer.
To bring in sharper focus on its core business model and make it nimbler, Flipkart is consolidating
the operations of its logistics and supply chain arm. Delivery to customer’s doorstep even in the
remotest location popularly termed as last-mile connectivity plays a vital role in the online business
and Ekart, the in-house logistics arm, has been able to provide this service efficiently and forms the
backbone of its business. Flipkart has also started monetising EKart and offers warehousing
solutions and end-to-end logistics and supply chain capabilities to other clients.
The two fashion verticals, Myntra and Jabong, owned by Flipkart, commands a 45% market
share in this vertical. They are bringing together their back-end operations and supply chain for
stronger integration.
They are also integrating their private brand portfolios in order to give a push to the trifling private
label business at Jabong. Despite such integrations, the consumer-facing platforms continue to run
independently as the consumer segments and geographies targeted by each of them differ widely.
While Jabong’s main revenue source is North and East, Myntra is big in South and West. Similarly,
Jabong’s consumer base mainly consists of women and first-time shoppers, while Myntra targets
more towards men and affluent consumers.
Customer Value – Explored, Created, Communicated & Delivered 2.4
MARKET SHARE V/S PROFITS
In a country like India where affordability means value for the masses across various categories,
Flipkart took different initiatives on this front as a big bet to revive sales. Initiatives like low-interest
monthly payments clearly attended to affordability issue; under “Flipkart Assured” stringent quality
checks were provided. There were exclusive partnerships, exchange programme on
smartphones, and sales of its own brands or products.
The Seattle-based Amazon has also experienced success with private label offerings. Across cate-
gories as diversified as electronics, accessories and baby care, Amazon has built a robust private
label unit. It launched AmazonBasics in September 2015 in the consumer electronics category, home
and kitchen brand Solimo in early 2016, followed by fashion offerings Myx and Symbol in the latter
half of the year. “Private brands play a role in providing great value to the customer by reducing
costs from the value chain (optimised design for ecommerce)” says an Amazon India spokesperson.
The private brands developed in-house help ecommerce firms squeeze out additional margins—15-
20% more than competing-third party brands—from this business. Private brands offering reliable
prod- ucts at an attractive price point are backed by high intent to purchase.
At a time when discounting and deep discounting had become a norm in the highly competitive e-
commerce space, it’s then Myntra announced the launch of its biannual sale event, “Big Fash-
ion Gig” from April 8 to 10, 2017. Unlike other previously run sale events, this one claimed to be
different in terms of being a low-discount event with a sharp focus on exclusive brands. The event
also saw the launch of a new line and style by celebrities on the platform. Unique propositions
were built for the customers such as guaranteed `never-on-discount’ brands and other features to
gain competitive advantage. 35 new brands were launched including international names such as
Dorothy Perkins, Next, Aeropostale, Forever 21 Men, Clinique, Bobbi Brown, Corelle, and How-
ards. Myntra’s efforts to spice up its premium fashion brand positioning with an exclusive line-up
of brands is definitely to strengthen its dominance in online fashion sales and boost profits through
higher margins. Premiumisation of line is expected to bring in new users and also attract existing
ones looking for new benefits and experience.
CUSTOMER EXPERIENCE AND ENGAGEMENT—A NEW VALUE TAPPED
To differentiate itself and enhance the shopping experience of its customers, Flipkart has given a
new, vibrant and glamorous look to its fashion section. Data derived from extensive research
suggests that customers searching for fashion are mainly influenced by celebrities, Bollywood,
Hollywood, friends, and other influential brands. Thus, Flipkart has tied up with such brands,
celebrities, TV channels and Bollywood movies and has completely revamped its fashion section
where selections will be seen presented in line with consumer liking. The country’s ecommerce
major has relaunched its core fashion category by putting in place a team of 100 style consultants,
who will help curate outfits based on searches made by customers.
Myntra has started to open physical stores for its private brands like Roadster, All About You and
HRX, is converting these stores into experience zones and the stores are loaded with technology at
every step and promises a great brand experience. The Roadster store has highly engaging elements
which
Customer Value – Explored, Created, Communicated & Delivered 2.5
include a video wall controlled by shoppers through a futuristic, multifunction touch-interface.
This wall showcases to them the intricate details of Roadster products and provides an update
on key international trends and communicates the brand story. Data on key looks and the
Roadster catalogue can be accessed by the interested shoppers through multiple touch screen
displays around the store. Then there is this unique ‘Scan & Go’ purchase mechanism which
allows shoppers to add their favourites to their shopping cart on the Myntra App, doing away
with shopping bags, check-out counters or billing queues.
Global loyalty marketing agency ICLP (A Collinson Group Company) released a research report
recently whose findings on personalization and customer recognition by e-commerce top rivals
say that 70% of Amazon and 67% of Flipkart customers felt that they were provided with
relevant recommendations for products and services that were of interest to them. On customer
recognition front, 63% of Amazon and 58% of Flipkart shoppers expressed that their chosen
retailer had taken the time to really get to know them and understand what they want.
INTO THE NEW AGE OF ARTIFICIAL INTELLIGENCE
“Voice is a big part of the computer interface of the future,” said Gene Munster, a veteran equity
analyst and now head of research at Loup Ventures. “Whoever owns voice will be the gateway of
commerce.” Amazon is all set to make a headway in developing voice assistants or “chatbots” to
decode speech.
In April 2017, technology powering voice assistant Alexa was rolled out to developers so that they
can build chat features into their own apps. Alexa is said to compete with Apple Inc’s Siri. Amazon
will take the text and recordings people send to apps to train Alexa to understand more queries.
On the similar stand is Flipkart, working on project Mira, an artificial intelligence-focused effort.
It will lead the search experience of the customers to be guided with relevant questions,
conversational filters, shopping ideas, offers, and trending collections.
Not just quenching the customer’s needs but Mira will also help streamline the back-end
processes, including accurate classification of products, accurate product descriptions, and avoiding
duplications. Once streamlined, this will later be used in issues such as product returns and quicker
delivery.
Globally, Amazon and eBay have invested exhaustively in artificial intelligence to improve their
marketplaces. In India, it is still in its infancy with a lot of ground to cover as Indian shoppers are
still coming to grips with buying online.
SELLERS’ EXPERIENCE
Various measures are being taken by the e-commerce marketers to expand their network of sellers,
to keep them satisfied and add to their experience. Amazon is doubling its investment in the year
2017 on seller infrastructure, spending on warehouses, fulfilment services, service provider network,
in-person support, and other services like seller cafes and instant registration to attract the potential
investments. All these initiatives have made Amazon a seller-friendly marketplace, offering a
frictionless experience to the sellers.
“As of March, there has been 160% year-on-year growth in the seller network on Amazon India,
with more than 1.75 lakh sellers. This has ensured that on an average, there are 1.8 lakh
Customer Value – Explored, Created, Communicated & Delivered 2.6
products
Customer Value – Explored, Created, Communicated & Delivered 2.7
for sale in the marketplace at any given time, compared with about 15,000-20,000 products in
a brick-and-mortar supermarket,” said Gopal Pillai, Amazon India director and general manager
(seller services).
Flipkart in order to make itself the most low-cost marketplace for sellers has altered seller fees for
certain categories and price ranges. “When we reduced rate cards, we reduced fixed fee, shipping
fee and collection fee and also offered a 10-20% discount for gold and silver (tier I and II category)
sellers,” said Nishant Gupta, director of marketplace, Flipkart. The fee reductions and discounts so
offered are passed on by 60-65% sellers across categories to consumers in the form of reduced prices
resulting in at least a 25% jump in sales.
Both platforms are seen by the sellers as fairly even now on the cost front. Difference
between the two is only while Amazon has brought global technology experience, Flipkart has
compensated by giving localised features and inventory management.
RELEVANCE FACTOR WELL ATTENDED
To gain an edge over its rival, Amazon, certain value additions in its services were brought in
by Flipkart such as introduction of 7am deliveries which reached customers in Mumbai and 43
other cities reliably. Smartphones being the biggest revenue generating category of Flipkart, was
proactively attended to by adding a unique service primarily to reduce the number of returns on
them. A team of technicians was created who were sent by Flipkart to fix minor glitches before
customers returns them and hence, providing experience similar to nearby electronic store.
Amazon has rolled out its global Prime membership service in India which gives customers access
to unlimited free one-day and two-day delivery on lakhs of products. Membership further extends
to include Prime video service which gives its members access to movies and TV shows from Indian
and global content providers.
With developments in the market taking panther pace, Flipkart in order to keep itself armed
strongly, is setting sight on new businesses. With its biggest round of funding of K9,000 crore from
Tencent, eBay Inc and Microsoft in this year 2017, it aims to grow its payments arm PhonePe,
expand its portfolio of private labels, and relaunch categories with high potential such as furniture
and grocery.
Competitive intensity is being seen at its peak, with new entrants in this space, newer benefits
for all stakeholders, business models turning more efficient and flexible, and technology setting a
revolution engulfing all.
Most recent development being the launch of Paytm Mall, a pure play marketplace, which does
not stock any inventory. It has tied up extensively with brands, distributors, and multi-brand stores,
thus offering same-day delivery and installation of large appliances across 20 cities to make the most
of the high margins and prices that this segment offers. For fulfilment, Paytm Mall has also created
a massive network of 40-plus service partners like Blue Dart, Delhivery, and Xpress Bees to handle
logistics with specialised services on correct handling and shorter delivery time.
Sensing the looming threat, Flipkart and Amazon India are following suit. They have also an-
nounced their investments for installations of large appliances ordered on their platforms, creating
a chain of specialised warehouses and distribution centres.
Customer Value – Explored, Created, Communicated & Delivered 2.8
IMAGE BENEFIT AS A CRUCIAL ELEMENT TO VALUE
After investing big in India, offering tailor-made features, and providing benefits filling the
right gaps, one setback that Amazon faces time and again is of it being tagged as non-Indian.
Especially in contrast to the home-grown leader, Flipkart who claims to understand the needs of its
countrymen much better than any foreign player. Amazon in order to raise its brand equity
further in the Indian market had to work on changing its perception in the minds of Indian
consumers.
Amit Agarwal, head of Amazon India, once responding to the ‘foreign’ tag said his company was
very much Indian. “I just want to reiterate that Amazon (India) is a company incorporated in
India, domiciled here. It follows all mandated laws, such as two-factor authentication, and pays
service tax as well.”
Efforts made by Amazon to emotionally connect with Indians include the airing of TV spots that
talk about Indians’ love for asli (original) 100% original products and their desire to browse through
innumerable options. Then there are series of ads where Amazon is referred by Indians as apni
dukaan, or our own store. Amazon sponsors a Kabaddi league to connect with grassroot Indian
consumers.
The company is shunning many of its global practices as well and is banking on a host of locally
tried and tested methods. To further add the value of Indianness to its image, in December 2016,
[Link] launched a programme called Amazon Launchpad, a dedicated web store that enabled
Indian start-ups to launch, market and distribute their products to customers not just in India but
globally. The company very aptly linked it with the Indian Government’s “Start-Up India” initiative.
As Bezos of Amazon had done 13 years earlier, Binny and Sachin Bansal of Flipkart also started
out with selling books. From then to now, these 2 behemoths of the e-commerce segment—along
with so many others—have continually been developing unique plans and creating superior value
for the consumer. May be time has arrived for the e-commerce giants to abandon their obsession
with GMV (gross merchandise volume) and develop new barometers to measure their success.
Customer Value – Explored, Created, Communicated & Delivered 2.9