Why e-retail is struggling in India?

Last half a decade in India has seen the emergence of a number of e-retail websites who have with much gusto and fanfare tried to establish their presence among the buyers in India. Indeed, these e-retail sites are now peddling anything from a baby diaper to a computer to expensive jewelry to designer clothes. While the industry of e-retail has seen a variety in the kind of items being sold, it has also simultaneously witnessed equally varied business models. 

While on one end of the spectrum, we have http://www.flipkart.com that functions like a supermarket, only online, and on the other end we have http://www.olx.com that facilitates consumers to buy and sell stuff among themselves. Somewhere in between we have sites like http://www.ebay.in that connect buyers to sellers but don't take any responsibility of delivery, nor have any control over what products sell in which categories.

But one thing is common across all the e-retail websites. It is their failure in getting customers to use their websites to purchase items.

An argument often given is that e-retail space is extensively commodified and that customers usually don’t differentiate one site from another. The result is that customer loyalty for a specific e-retail website is very low. As a consequence, each e-retail website now invests a large amount in marketing itself so that their brands enjoy a greater recall among customers.

However, the benefits of such heavy investments into marketing haven’t been forthcoming. The customer base hasn’t equally risen with investments in marketing. As a result, most of the e-retail companies are incurring heavy losses.

It is not as if there isn’t a significant population of India that has access to the Internet. It is not that the population that is online is averse to spending money either. Typically, internet penetration is greater among the more affluent classes than in the lower socio-economic groups. Yet, a general lack of online purchase activity persists.

The problem, in my opinion, doesn’t lie with the Internet medium or with the e-retail vendors, or with the customer base etc. either. It lies elsewhere in a completely different socio-cultural dimension.

There exists a general deficit of trust in India, especially in financial transactions. We don’t trust our business partners to deliver on their commitments. Similarly, we don’t trust our shopkeepers to deliver honestly on their promises. We believe that when given a choice our shopkeepers would rather stick us an inferior product or an incomplete order.

That legal recourse is long-winded and often people-unfriendly only increases the risk that buyers face.

That’s why we don’t even home-order vegetables and fruits. We are sure the vendor will pack some inferior quality products and sell to us if we don’t do a due diligence on the items before paying for them.

It is this deficit of trust that plays a big role in defining the behavior of Indian customers online.

The Internet is a vast unknown space and the identity of the persons on the Internet is not always visible to everyone. The passive nature of interaction over the Internet makes it easier for pranksters, fraudsters, and criminals to misrepresent their identities and take advantage of gullible people.

Under these circumstances, an average Indian buyer feels very uncomfortable with the idea of giving away money for a thing that she has not inspected or palpated to someone she has not seen, met, or spoken to.

Not that an average Indian likes to even consider the possibility of taking a legal recourse in case of a dispute. Courts and judiciary are perceived with much dread and suspicion.

Therefore, the Indian customer chooses to avoid transacting over the Internet altogether.

Some of the e-retail websites have identified this problem and their communication has already started assuaging these concerns of their customers. For example, most e-retail companies are already offering ‘Cash-on-delivery’ payment options, money-back guarantees, and free replacements.

Are these steps sufficient to wipe out the trust deficit? Only time will tell.

Until then effort must remain towards winning the trust of the customers relentlessly and ensuring that under no circumstances the trust gets eroded. Only then would Indian e-retail companies will see a boost in their growth.

The simple truth

Without meritocracy, there is no sense of worth. Without sense of worth, there is no pride. Without pride, there is no respect. Without respect, there is corruption. With corruption, the country goes to dogs.

Definition of 'Brand'

'Brand': Consistent delivery of promised value.

The key word is 'Consistent'. The 'value' can be anything. It is not important that 'value' be 'high' or 'best' or any other positive superlative. In fact, the value could be an honest admission that the goods or services are at best 'mediocre'.
What is however important is how consistently does the seller deliver the said value to the customer. The more consistently the seller delivers the promised value the stronger is the brand.
Therefore, it is important for companies to ensure that the 'value' they convey to the customers is delivered without fail irrespective of the underlying product or service.

Time To Market

It is often drilled into our heads that it is important for a business to reduce its Time To Market (TTM) or the time to take a product from conception to the market for sales. True, but we are also told that contrary to the popular notion, TTM is more important for market followers than first movers. This is where there is something grossly counter-intuitive for me in the aforementioned theory. According to me, TTM is very important for the first-in-the-market players but not so much for the later entrants.

Any entrepreneur who is building a new product which is the first of its kind is inherently taking a lot of risk. The risk not only exists in terms of investment of money, time, and effort, but also gets amplified owing to any reasonable proof of concept in the market. One can never be really sure about how customers in the market are going to receive one's first-of-a-kind product because, well, the customers haven't seen anything like it before. The more one tries to "perfect" the product, the more investment is required, and therefore the more risk one faces.

Now imagine that while one was still in the process of building the said product, a competitor introduces a similar product in the market. There could be the following scenarios:

	Inferior Competitor Product	Superior Competitor Product
Market Accepts	No risk; immediate product release	Very high risk - make product better and release immediately
Market Rejects	Lower risk - Make product better and release after some time	Risk avoided - can divert investment to some other product

As you can see, in 3 out of 4 scenarios, the risk for the second entrant is lower than what it was before the competitor released the product. The risk is lowered because the late entrants have the luxury of "proof of concept" that the market leader did not have. Therefore, the TTM becomes less important for them than if they were still in the fray to be the first one to introduce the product.

The risk however does increase significantly if the competitor's product is superior to one's own current product and has already been accepted by the market. It becomes imperative then to invest more into the product to make it AT LEAST AS GOOD AS THE COMPETITOR'S before taking it to the market AS SOON AS POSSIBLE.

The TTM in this case becomes extremely important. It however does not overshadow the need to make the product better. Taking a substandard product to the market when customers already have the option of a better one, will be suicidal for any business.

On a concluding note, I would like to highlight the 'GOOD' in the "at least as good as the competitor's" statement above. Invariably, the notion of good is associated with the concept of "value for money". The operative word being value. The notion of value is intrinsically linked to target customer segment, price, promotion, and channels (the 4Ps, if you will).

For a business owner, it becomes important to immediately assess the value that the competitor's product is trying to provide and therefore re-calibrate the value that one may choose to provide instead. Several businessmen caught in the top right corner of the box above end up immediately releasing their offerings at a different price, or to a different customer segment, or through different channels. Soon enough, they end up creating a different positioning in the minds of customers and are rarely bracketed in the same category as their competitors.

Some interesting examples of market followers who arrived late and yet overshadowed the market leaders:
1. Microsoft Windows vs MacOS
2. Facebook vs Orkut
3. Google vs Altavista
4. Google Chrome vs Internet Explorer
5. Toyota vs Ford