What really impressed me was the fact that she remembered Toys’R’Us.com and could associate it with someone who could help in meeting her birthday wish. This got me thinking about how online retailers in US have been able to create a unique enough differentiation for themselves where customers know exactly what these retailers stand for. There are some retailers in US that are still struggling with this, but at a broad level, most of the retailers (online as well as traditional) have found a unique proposition for the customers. Whether it is the largest assortment (Amazon.com) or value for money (overstock.com) or discount electronics (Newegg.com) or Jewelry & Gifts (Bluenile.com) or upscale household category (William-Sonoma) or a great service experience (Zappos.com), there is a lot of differentiation. If a 5 year old can recall Toys’R’Us when they are thinking of toys, imagine how easy would it be for a grown up to do the same across various categories. Then I thought about the Indian context and I tried really hard to think about all the unique things that the online retailers in India stand for. I thought about product assortment, pricing, categories, service and after trying really hard, I wasn’t able to come up with any meaningful differentiation that really sets one retailer apart from other. True, there are some retailers that offer a bigger assortment than others – but more or less all other dimensions are similar across most of the online retailers.

Then I thought, what is it that Indian customers think about before shopping at one retailer vs. other. I also asked this question to a lot of individuals who I know have been online shoppers for quite some time. The results of this “unscientific” study were very disturbing – other than familiarity with the brand, the one key aspect that most of these individuals looked at was price of the product they were looking for. I asked them what about service, and the quality of execution – the answer was even more disturbing. “What service?” Almost all of them said that they’ve faced service related issues with most of the online retailers so they really don’t differentiate any one retailer vs. other on the basis of service.

All this long winded background really leads me to one simple conclusion – there really isn’t any strong differentiation that online retailers in India are able to stand for. This may sound very obvious and you are probably thinking – Duh Mr Blogger!! Thanks for enlightening us with something we already knew!! Point taken – however, my question is that isn’t a brand more than just a name and a symbol? Isn’t it about delivering a promise – a promise for something. Whether it is better execution, great experience, lowest prices – a brand must stand for something that customers can relate to. So what promise do the online retailers in India stand for? I continued my exploration and thought about all the different dimensions that the online retailers could look at in order to differentiate themselves.

The first one that comes to mind is focus on specific categories. Why isn’t there any online retailer that is focused on just one category? Why don’t we have any online retailer in India who can claim to be the largest books store or the largest jewelry store? One obvious answer could be that the overall eCommerce pie is too small and by focusing on just one category, the retailer may not be able to make decent revenue. Fair argument – however this is where the true visionaries are required. Its true that online shopping is not a large category today (roughly about Rs. 400 Cr to 700 Cr, depending upon who you ask). However, one must have a conviction and a vision around where eCommerce is headed. Once eCommerce hits the tipping point, the retailers who are focused on specific categories stand to gain the most by capturing the largest market share for that specific category. “But I want to build the next Amazon!!”, you say. “I want to build a mega store that can capture market share across all these categories – why should I focus on only one category?” Nothing wrong with that thought – however then you must think of a different dimension that really sets you apart from other online retailers. This is a good segue to my next point.

The second and my most favorite point is about service. I have heard a lot of people say that although it is good to strive for excellence in service, this dimension alone can’t differentiate one online retailer from another – not especially in India. I respectfully disagree. It is true that in the Indian context today, most online shoppers are shopping on the basis of price. However, perhaps this is because they haven’t yet experienced an online retailer that is truly focused on consumer delight. There is a difference between striving to be great in execution vs. building the organization from the ground up that is focused on customer service and delight. Case in point – Amazon and Zappos. Amazon does a fantastic job in execution and offers a very decent customer service, but I would argue that the focus at Amazon is on operational excellence rather than customer delight. Zappos on the other hand, goes out of the way to make sure that every single customer is delighted even at the expense of higher operational costs. It is a subtle difference but this subtle difference helped Zappos in grabbing the largest market share within shoes category leaving behind the likes of Amazon and Walmart.com.

Another dimension that is most commonly looked at is that of price. My personal perspective is that differentiating purely on the basis of price is a dangerous game to play. A game that will eventually be lost. This is especially relevant in the Indian context where the product sourcing doesn’t offer a lot of differentiation. There are a limited set of vendors in the marketplace who are supplying to majority of the online retailers. Therefore, it is hard to build a sourcing relationship with a specific vendor that can offer a sustainable price advantage. This is only possible if the online retailer is focused on private label merchandise – however, selling private label within India via an online channel will be extremely difficult.

So what does this all mean? Is there no room for broad based online retailers? I think there is enough room for every one – however, today the options are fairly limited from a customer point of view. Therefore, even though there is not much differentiation among online retailers, customers are still shopping online – albeit primarily on the basis of price & reputation. As more online retailers enter the space and as the eCommerce awareness increases, customers will start looking more and more for that brand promise. They will start looking for that one thing in the online retailer that is unique enough for them to switch from a browser to a buyer. That would be the time when the online retailers who haven’t yet thought about a unique brand promise will struggle. But will it be too late by that time? Time will tell – but in the meantime, I am off to Toys’R’us.com to shop for that Dora doll for my daughter.

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.