The Amazon versus Flipkart e-commerce battle waging in India has been covered exhaustively (Economic Times, firstbiz etc) by numerous news sources. What is pertinent in this battle is not the investment, the VC’s, the business model, the retail competition, the lucrative market share or the advertising; instead it is whether either of these two retailers will understand the uniquely diverse Indian consumer mindset and build a strategic business model to cater to it.
Let’s have a look at some data surrounding the Indian e-commerce space:
- India has a population of about 1.2 billion.
- According to a report released by the Internet and Mobile Association of India (IAMI), the number of internet users in India around June 2014, is estimated to be around 243 million.
- Nearly 75% of new users and more than half of India’s base of Internet users in 2015 are likely to be mobile‑only subscribers who will use Internet-enabled devices.
- According to Forrester Research India’s online retail spending is expected to reach $16 billion by 2018.
- The urban population was at 377 million in 2011, or 31% of India’s total population.
- According to Ernst and Young “India’s global middle class, at around 50 million people, or 5% of the population, is expected to grow steadily over the next decade, reaching 200 million by 2020.”
- According to the Brookings Institution report on “The Emerging Middle Class in Developing Countries” India will experience the highest growth in the Asia Pacific region, with India’s middle class consumer market projected to surpass both China and the US by 2030.
What does the data mean?
India currently has one of the largest and fastest growing base of urban, travelled and aware internet users. This coupled with the fact that India has largely been a consumption driven economy indicates that there is an educated (not traditionally school educated) consumer who corporations need to understand and target their attention towards.
The fact is that a significant majority of the population accesses the World Wide Web via mobile devices. Companies penetrating this market need to not only focus on mobile specific content and design but also keep in mind structural issues such as low internet speeds (Mckinsey), smaller screen sizes, payment options and connectivity.
According to a report by Deloitte, by the year 2030 India is likely to emerge as one of the worlds largest middle class consumer markets with an aggregated consumer spend of nearly US$ 13 trillion. Pezzini speaking about the emerging middle class in the ‘developing world’, explains that this middle class is not only a generator of growth, but also a facilitator of democracy and political as well as social change. It is this emerging middle class that has to be viewed by corporations in totality keeping in mind their social, political and cultural influences. Their drivers are a result of their environment and include myriad factors such as dissatisfaction with the government structure, seeking out more efficient ways of doing things, wanting better quality of life etc.
Logistic challenges and consumer behavior peculiar to India
In examining the Indian market, offhand there are some logistical and consumer behaviour challenges that are peculiar to the region. For example:
- The typical Indian consumer still wants to sample aka touch and feel a product before buying it, especially when it comes to clothes and shoes that involve a specific size.
- India probably has one of the most value driven consumer bases compared to other emerging markets. Almost everyone has access to tailors, cooks and other service professionals who customize their services and products to individual customers demands. This customization is affordable. Selling standardized goods to this consumer who is used to specificity is a challenge.
- This consumer is cost conscious and a bargain hunter, and will search for the most affordable options. Infact the market has numerous applications/plug-ins like ‘MakkhiChoose’ that help the user to discover the lowest price of a product across major e-commerce portals in the matter of a few seconds. Balancing out cost and quality will be a challenge.
- This consumer is community oriented. An Indian will speak to colleagues, friends, family, corner store shop keepers and in many cases strangers before making a decision. Any new entrant has to focus heavily on the overall consumer experience, offer support and a sense of community at all times.
- The Indian consumer is overly cautious. Companies need to focus on building trust and transparency.
- Low penetration of credit cards. Majority of India still is a cash economy. Cash on delivery is the preferred form of payment. 58% of transactions fall in the COD category.
- Payment Gateways (credit cards) in India tend to have a higher failure rate and transactions don’t necessarily go through in one try.
- Outside of large urban centers there are no standardized address. Movers breaking into the e-commerce segment in India need to find innovative ways of dealing with distribution and delivery. A vast majority of Indian addresses are not standardized and delivery is an issue as you penetrate further into rural India. To combat this, Amazon has partnered with Indian Postal Service to reach those geographical areas where only the postal service has service. This partnership also allows Amazon to tackle the COD issues since Indian Post accepts COD.
Investing in India is not just a matter of having deep pockets, great technology or strong infrastructure. India is different. It is not a typical market and the users cannot be clubbed into standard groups. In a culture where ‘Jugaad’ (aka the habit of creating a personalized innovative ‘fix’ to make something work for you) is a part of the regular DNA of every Indian – standardized business models are not the route to success. For companies like Amazon and Flipkart the challenge will be figuring out what works for the Jugaad consumer.
Mahesh Murthy/Quartz http://bit.ly/1t9P9za
KPMG and Internet and Mobile Association of India 2013 Report http://bit.ly/1okApyw
EFY Times http://bit.ly/1pxtu4E
Telecom Regulatory Authority of India (TRAI) 2013 Report http://bit.ly/1o1LsxX
Ernst & Young 2012 report (http://bit.ly/1ln9o9h pg.22)