Top e-retailers of India: business model and components PDF

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Top e-retailers of India: business model and components Citation: Kaila, P. (2015), “Top e-Retailers of India: business model and components”, International Journal of Electronic Marketing and Retailing, Vol. 6 No. 4, pp. 277-298. Abstract - Thoughtful insights on business model components of top e-...

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Top e-retailers of India: business model and components Citation: Kaila, P. (2015), “Top e-Retailers of India: business model and components”, International Journal of Electronic Marketing and Retailing, Vol. 6 No. 4, pp. 277-298.

Abstract - Thoughtful insights on business model components of top e-retailers based in India have been achieved through content analysis of reliable books, reports, journals and web. Six major e-retailers are compared on the basis of monthly traffic data obtained from similarweb.com. It’s observed that online retail is meager 0.5% of overall retail in India and future potential is huge. Due to FDI restrictions all top e-retailers under this study except HS18 prefer marketplace model in pure/hybrid form and earn revenue through transaction fee. Their marketing strategy essentially includes social media and internet. They operate with lean manpower and functional departmentalization except Flipkart which employs massive 10000 plus employees and prefers to recruit generalists. National capital region and Bangalore are preferred locations for establishment of their headquarters. This review will be useful to businesses and researchers interested in developing/benchmarking successful e-retail business model to win and sustain competition. Keywords E-retail, Business model, India

1.

Introduction

It is estimated that Indian online retail will grow to 84 billion USD till 2016 (The Boston Consulting Group, 2012). With internet population of 243,198,922 and penetration of just 19.1% (Internetlivestats.com, 2014). Electronic retail is about to sky rocket in the coming future. Entry costs and barriers are low in online marketplace there are thousands of aspiring e-retailers who dream to make it big in the market. Since entry is easy there is stiff competition between existing and upcoming players and survival depends on how they differentiate themselves from other business and create a profitable niche for themselves, which focuses on segmenting, targeting and positioning. Apart from focused strategy keeping expenses low, selection broad and inventory control are few more areas that an e-retailer need to tweak for success (Laudon & Traver, 2009). A business model is a conceptual framework based on which value is delivered to the customer, and customers are lured to pay for that value, so that the enterprise get paid and make profit. Big technological achievements may become commercially unsuccessful if business model is poorly designed (Teece, 2010).

1.1. Business Model Be it a new or established player, a business model is of utmost importance to every organization. Business modeling is managerial function which is similar to scientific method, which starts with hypothesis testing and its fine tuning. It outlines, as system, how fragments of business process fit together to make profit in the marketplace. Although strategy is used interchangeably with business model but it differs because strategy details about ‘How to have winning edge over competitors’

1

(Magretta, 2002). A good business model formulates the structure for product, service and information flows, and activities of people involved in business, their benefits and revenue sources. Interestingly, electronic commerce is rendered with new set of opportunities to business due to supplementation by power of World Wide Web and internet (Timmers, 1998). Along with opportunities, e-business leads to rigid competition in borderless arena of space and time. In this rapidly changing complex competitive environment firms with flexible managerial paradigms can only survive (Dominici, 2012). Because of digitalization of product and service offerings in e-business environment, whole new set of transactional conditions are created that vary from those characterized by physical products (Dominici, 2009). Constantinides (2006) suggested that managers should focus on building market-oriented, flexible and inventive organizations which can constantly innovate and adapt to fast-changing market conditions and deliver customer value.

1.2. Key components of business model A thriving Business Model consists of eight key components i.e. value proposition, market opportunity, revenue model, competitive environment, competitive advantage, market strategy, organizational development, and management team (Ghosh, 1998). Value proposition specify how product and service are put together and extended to fulfill customer needs by company (Kambil et al., 1996). Personalization, customization, convenience, and reduction of product search and price delivery costs are part of a productive e-commerce value propositions (Bakos, 1998; Kambil, 1997). Revenue model defines how a firm aims to generate higher return on investment and profits. Important e-commerce revenue models include advertising, subscription, transaction fee, sales, and affiliate revenue models (Laudon & Traver, 2009). Market opportunity gives description of possible revenue a company is likely to generate from its proposed marketspace. Competitive environment pertains to rival companies operating in same marketspace, potential new entrants in the market, product substitutes available in the market and bargaining power of customers and suppliers over your business (Porter, 1979). Competitive advantage is infused by elements that distinguish the company from its competition, they can be superior product, lower price, global/national/regional presence, access to factors of production, favorable terms with supplier, shipper or source of labour, more experienced/ knowledgeable/loyal employees, patent on product, investment capital, knowledge/ information/ power, brand name or leveraging huge customer database and years of e-commerce knowhow. Market strategy is the program company designs to outline how it will get into the market and draw in customers (Laudon & Traver, 2009). Organizational development strikes a balance between all the functions and skills necessary to carry out each job in a company, which require timely recruitment of suitable candidates. Management team comprises employees at the highest level of company who determine growth and expansion. Overall market opportunity in context of Indian online retail market and competitive environment in terms of monthly traffic generated by six online retailers under this study is discussed before comparative review of complete business model of each e-retailer.

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2. Market opportunity and competitive environment 2.1.1. Current scenario/ market opportunity of Indian online retail market in terms of size and growth Indian population has enormous enthusiasm towards internet and it has become fundamental element of our speedy lifestyle. Internet has evolved from just a medium for communication to consumer-centric emarketplace, where consumer can buy latest products and services at best price and convenience. With changing lifestyles and growing internet penetration in last 5 years, India’s online retail industry has grown nine folds from around Rs 15 billion revenues in 2007-08 to Rs 139 billion in 2012-13. This compounded annual growth rate (CAGR) of over 56 per cent is propelled by sales of books electronics and apparel. New businesses are focusing on niche segments like grocery, jewellery, furniture and apparel, this will further drive the market to healthy 50-55 percent CAGR of Rs 504 billion by 2015-16 (Figure 1) (CRISIL, 2014). Many venture capitalists and investors have their interest in successful and large online retail companies (The Economist, 2014) and a relaxed FDI (Foreign direct investment) policy will certainly help Indian retailers.

600

Next 3 Years CAGR: 50- 55%

500 400

504

334

300

Figure 1: Indian online retail market size and growth (CRISIL, 2014)

2.1.2. Total retail Vs online retail Potential of India’s online retail industry can be estimated from the fact that it’s very small in comparison to organized and overall (organized plus unorganized) retail in the country. It is expected that industry’s revenue will grow to more than double to around 18 per cent of organized retail by 2016 from around 8 per cent in 2013. Still its share will be just 1% of the overall retail (organized plus unorganized) pie (Figure 2), which is very low as compared to 9-10% in the US and UK, and around 4-5% in China (CRISIL, 2014).

3

2015-16P

2014-15P

2010-11

2013-14P

58

139

2012-13E

38

91

2011-12

24

2009-10

2007-08

15

2008-09

100 0

224

Previous 3 Years CAGR -56%

200

Overall retail market in India Rs 25286 billion 2012-13 Organized retail market in India Rs 1767 billion 7% of overall retail Online retail Rs 139 billion 7.9% of organized retail 0.5% of overall retail Figure 2: Comparative picture overall Vs online retail 2012-13 (CRISIL, 2014)

2.1.3.

Digital commerce market category wise from 2009-2013

Digital commerce market in India has been dominated by online travel throughout its evolution, but electronic retail is catching up and more and more online users are showing interest in making purchase online. Another category which has shown upward trend is Financial Services (Table 1). Based on total transactions done through personal computer and mobile (IAMAI, 2013): •

Online travel transactions have been leading digital commerce industry with 73% share (INR 34,544 Crores), and it’s expected to grow further at the rate of 30% and reach to INR 44,907 Crores by the

•

end of year 2013. Non-travel transactions chip in remaining 27% (INR 12,805 Crores), out of which: a.

E-tailing claims first position with nearly 50% share (INR 6,454 Crores)

b.

Financial services take second spot with 23% share (INR 2,886 Crores)

c.

Classifieds segment get hold of 18% of the whole non-travel industry pie (INR 2,354 Crores)

d.

Other online services sum up to the remaining 9% (INR 1,110 Crores)

It is expected that the non-travel industry segment will mature by 41% and reach up to INR 18,060 crores by December 2013.

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DIGITAL-COMMERCE MARKET SIZE FROM 2009 - 2013 (Figures in crores, percentages indicate share of overall market size) Year

Dec-09

Dec-10

Dec-11

Dec-12

Dec-13 (Estimated)

Total Market Size

19,249 14,953 (78%)

26,263 20,440 (78%)

35,142 26,572 (76%)

47, 349 34,544 (73%)

62,967 44,907 (71%)

4,296 (22%)

5,823 (22%)

8,570 (24%)

12,805 (27%)

18,060 (29%)

E-tailing

1550

2,372

3,842

6,454

10,004

Financial Services

1540

1,848

2,255

2,886

3,607

Classifieds

775

1,085

1,682

2,354

3,061

Other Online Services

431

518

792

1,110

1,388

Online Travel Industry Online Non- Travel Industry

Table 1. Digital commerce market size from 2009-2013 (IAMAI, 2013)

2.1.3.

E-tailing

E-tailing comprises of buying consumer items such as books, apparels and footwear, jewellery, mobiles, cameras, computers (desktops/laptops/net books/tablets), home and kitchen appliances, home furnishings, vouchers/coupons, flowers and toys, gifts online. The E-tailing category has grown from INR 1,550 crores in the year 2009 (Jan-Dec 2009) to INR 6,454 crores in year 2012 (Jan-Dec 2012) (Figure 3). This category is estimated to cross the 10,000 crore mark in the year 2013 (IAMAI, 2013).

12000 10000

Figures in INR Crores 55%

10004

8000

68%

6000 4000

53% 2000 0

6454

62% 3842 2372 1550 Dec (2009)

Dec (2010)

Dec (2011)

Dec (2012)

Dec (2013)

Figure 3. Growth of e-tail in India, 2009-2013 (Figures in INR Crores) (IAMAI, 2013)

2.1.4.

Components share of e-tailing, Jan-Dec 2012

Top components that take nearly 78 % of total e-tail market are laptops/net-books/tablets 24.5% (INR 1,579 crores), followed by apparels & footwear which contribute 20.6 % (INR 1,331 crores) and Mobile phones, cameras, mobile & camera accessories contributing another 33% (INR 2,131 crores). Remaining

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20% (INR 1,413 crores) of the total E-tailing pie is constituted by consumer durables & kitchen appliances, books and home furnishings, i.e. INR 500 crores, INR 288 crores and INR 200 crores respectively. Only about 3% is contributed by nascent category comprising products like deals/coupons, toys, gifts, handicrafts, flowers etc (Table 2) (IAMAI, 2013).

Component Share of E-Tailing (Total: INR 6,454 Crores Jan-Dec 2012) Percentage (%)

Market Size (INR in Crores)

Books

4.50%

288

Apparels + Footwear

20.60%

1,331

Jewellery + Personal/Health Care Accessories

3.70%

240

Cameras + Camera Accessories

14.10%

914

Consumer Durables + Kitchen Appliances

7.80%

500

Home Furnishings

3.10%

200

Mobile Phone + Mobile Accessories

18.90%

1,217

Laptops/Netbooks/Tablets

24.50%

1,579

Other Products (Voucher, Coupon, Toys, Gifts, Handicrafts, Stationary, Etc

2.80%

185

Component

Table 2. Components share of e-tailing, Jan-Dec 2012 (IAMAI, 2013)

2.2.

1

Competitive environment

Six electronic retailers based in India are examined on the basis of monthly traffic they generate. For comparison similarweb (Similarweb.com, 2014) has been used to find out the numbers. Results are discussed below (Prabhudesai, 2014):

2.2.1

Estimated monthly traffic - Top position was held by Flipkart with over 62 million visits/month, followed by Myntra coming bit lower at 59.5 million. Since Flipkart has taken over Myntra, together they generate more traffic then rest of the 4 players combined together. Jabong grabbed third spot with 42.5 million visitors, beating Snapdeal (31.4 million) and Amazon (27.6 million) (Figure 4).

1

Statistics taken for April 2014

6

Estimated Monthly Traffic (in millions) Flipkart

62.3

Myntra

59.5

Jabong

42.5

Snapdeal

31.4

Amazon

27.6

HS18

8.8 0

10

20

30

40

50

60

70

Estimated Monthly Traffic (in millions) Figure 4. Estimated monthly traffic (in millions) (Prabhudesai, 2014)

2.2.2

Time spent per visit (in minutes) - Again Flipkart is leading the pack with high levels of engagements of 8:35 minutes per visit by each visitor, followed by Snapdeal which averages at 7:49 mins. Myntra and Jabong had very poor scores of time spent by visitor at an average of 3.04 mins and 3.34 mins respectively (Figure 5).

Time Spent Per Visit (in Mins) Flipkart

8.35

Snapdeal

7.49

HS18

6.27

Amazon.in

5.52

Jabong

3.34

Myntra

3.04 0

1

2

3

4

5

6

7

8

9

Time Spent By Each Visitor (in minutes) Figure 5. Time spent per visit (in minutes) (Prabhudesai, 2014)

2.2.3

Page view per visit - As Flipkart has highest time spent by visitors, therefore it has maximum page views per visitors at 8.53. Snapdeal (6.74), Amazon (6.65) and Homeshop18 (6.26) lineup close. Myntra (3.96) and Jabong (4.16) aren’t very effective in holding visitors glued to their webpages (Figure 6).

7

Page View Per Visit Flipkart

8.53

Snapdeal

6.74

Amazon

6.65

HS18

6.26

Jabong

4.16

Myntra

3.96 0

1

2

3

4

5

6

7

8

9

Page View Per Visit Figure 6. Page view per visit (Prabhudesai, 2014)

2.2.4.

Source of traffic - Source of traffic can reveal insightful facts about from where and how electronic commerce websites generate traffic. A website with higher direct traffic and lower search traffic indicates that consumer can identify that website as brand and directly enters the url, whereas a website with higher search traffic and lower direct traffic signals that visitor is unaware about the website. Myntra, Flipkart and Jabong have better brand recall therefore they have lower search traffic and higher direct traffic. Contrary to that Homeshop18 has high search traffic and low direct traffic. Myntra and Jabong have high referral traffic, thorough coupon sites, affiliate partners etc. Myntra, and Jabong have nearly 6% traffic coming from paid advertisements (Figure 7).

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Source of Traffic (Percentage) Flipkart

35.55

Myntra 7.66

41.78

Jabong

22.44

41.81

37.19

15.13

Snapdeal

38.87

43.55

Amazon

41.41

HS18

15.84

38.11

21.20

32.46

57.64 0

37.9

20

Traffic Via Search

40

12.80 60

Traffic Via Referrals

26.76 80

100

Direct Traffic

Figure 7. Source of traffic (Prabhudesai, 2014)

9

120

Table 3. Business model of top e-retailers based in India Sno

1

2

eRetailer

Myntra

Flipkart

Basic Business Model

Virtual merchant (aggregator of many brands)

Virtual merchant (marketplace model/hybrid model)

Component Value Proposition

Giving consumers the power and ease of purchasing lifestyle and fashion products online

Completely hassle free online shopping experience with best prices in India

Revenue Model

Competitive Advantage

Market Strategy

Sales revenue and transaction fee model

Cost leadership, product differentiation and customization. Global service across 40 countries.

Focused on establishing itself as a brand and now it focuses on overcoming barriers in consumer mind. Positions itself as new age fashion brand Uses digital platform like facebook and electronic media to target youth Also uses viral marketing, occasional and referral discounts Launching Virtual trial Room application

Sales revenue and transaction fee model

First Mover in the Indian electronic retail Industry. Became India’s largest online bookseller Boasts 100% growth e...