eCommerce in India - A blog by Darpan Munjal

The other day, I met someone at a conference who mentioned to me that he was planning on starting an online retail venture in India. He said he has already begun the software development for the platform and one of his friends is a great SEO person so marketing should not be an issue. Is there anything else critical that he should plan for, he asked? Although his level of planning (or lack thereof) didn’t give me a lot of confidence in his venture, it did give me few ideas for topics that I should write about in my Blog.

Although technology plays a critical role in building an eCommerce operation, just focusing on a technology platform without careful planning of other factors is a recipe for failure. I have heard a lot of people say that successful eCommerce companies require a strong technology orientation and should therefore, be led by a technology team. Although a technology leadership can certainly help, having a strong technology foundation doesn’t obviate the need for traditional factors that make a retail business successful. Customers don’t buy products in an online store just because they love the technology. At the end of the day, it comes down to having the right mix of products, at the right price, coupled with a strong execution and end to end experience that is difficult for other competitors to copy. No doubt that technology can and should play a key role in all above factors. However, one must remember that technology is like a foundation of a house, it is a necessary component, and if poorly designed, it can destroy the house. However, a house requires a lot more things than just the foundation for it to be livable.

This is a great time to begin an eCommerce venture in India, however, if you are thinking about getting in before the mad rush begins, you should consider a few things to maximize your chance of success.

Categories

There are certain categories which will always be better positioned to sell on the internet. This is especially true in Indian context where eCommerce adoption is still in its embryonic stage. Categories that have a larger concentration of well known brands, such as Home electronics, cellular phones are likely to sell relatively easily, compared to unbranded or private label products (such as apparel). You must make a conscious decision on how broad you want your assortment to be. You could offer a broad set of categories, or you may chose to go after a vertical niche such as cosmetics, groceries, books, electronics etc. Both of these options have advantages and disadvantages. However the one thing you should consider is that the overall eCommerce pie in India is still very small. Going to the market with a very narrow assortment could limit your ability to scale up. On the other hand, focusing on smaller set of vertical/niche categories may be a good long term decision – because when the market is flooded with a large number of broad based online retailers, focusing on a niche may help you establish the right positioning for your company and it might also give you a better control over your suppliers.

Target Customers

Although this may seem like a text book exercise, one should always spend some time in defining the target customers. No, I am not talking about demographics such as age, internet usage, income level etc. It is easy to define that. Instead, I am talking about psychographic questions such as - Are we targeting customers who are looking for low priced merchandise or are we targeting customers who are willing to pay a small premium for a great end to end experience or are we targeting customers who are looking for good gift giving options. The initial reaction that most people have is – lets target all types of customer. This is definitely understandable, especially if you are in a startup mode; however, it is necessary to establish a focus. I am not suggesting that one should go out of the way to avoid customers who do not belong to their target segment. However, every decision you make about the business strategy must be based upon who you are targeting. For example, if your primary target is customers looking for low priced products, it may be ok to give up control and outsource certain functions such as call center. On the other hand, if your core value proposition is around a great customer experience and quality, you may decide to have an overall control over CRM and order fulfillment.

Inventory Decision & Vendor Partnerships

Whether to stock your own inventory or to leverage 3^rd party vendors to ship products is probably the most critical decision you will be faced with. There are significant risks and opportunities with both the options, however, if you chose to go with 3^rd party vendors, the biggest trade-off is about the level of control you are willing to give up in the end to end customer experience. On the flip side, you don’t have to worry about carrying inventory costs and be faced with out of stock or over stock situations. This also speaks to the fit with the overall strategy – if your goal is to offer the biggest size of the assortment at the lowest price point, you are probably better off going with 3^rd party vendors who can source the products at a larger scale. On the other hand, if your mission is to build the best customer experience, then you would probably require a tighter control on the end to end process and it might make sense to limit your vendor partnerships to a smaller set of vendors who can execute better.

Technology

Technology is a critical foundation of any eCommerce venture. There are a number of options available ranging from Open Source (e.g. OS_Commerce) or licensed software (e.g. IBM Websphere Commerce) or managed eCommerce services arrangement. Although I would probably leave the detailed comparison of these options for a future post, it comes down to the overall objective. If you are looking for a strong differentiation in the end to end experience, it is better to build your own technology platform in my opinion. However, if you are looking for quick time to market, and if your goal is to differentiate among other dimensions such as pricing or assortment, you are probably better off leveraging a licensed eCommerce software. In any case, you should consider investing in a robust site analytics software (e.g. Omniture or Google Analytics) and a parametric based search solution so that customers can easily find what they are looking for. One thing that usually gets ignored the most often is the automation in the back-end order management. Most of the smaller eCommerce players focus on building the front-end capabilities and rely on a lot of manual processes and adhoc reporting to fulfill customer orders. I believe by putting an equal emphasis on backend automation and robust order management solution can help you build an environment that can improve the overall predictability in the end to end customer experience.

Marketing Strategy

Even though there are limited number of eCommerce players in the Indian context, it is extremely important to carefully determine the go to market strategy and allocate enough funds to execute it. You may have the best assortment and a great customer experience, but you still have to convince the customers to come to your site and transact with you. I personally know of atleast 2 eCommerce ventures who had built a great technology infrastructure but didn’t have a well thought out marketing plan. They were hoping that the word of mouth alone will give them the desired number of eyeballs. Well they waited too long for these eyeballs to come, and in that process, took their eyeballs off the cash flow projections. They ran out of money too quickly, and then had to offer a fire sale of their equity to get bare minimum funding so that they could keep the venture afloat.

Although a lot of these factors may seem very obvious, thinking through these factors upfront can help minimize a number of startup and execution related risks associated with an eCommerce venture.