The e-commerce boom in India has thus far been fuelled by deep discounting. In March 2016, the government notified new rules for 100% FDI in the marketplace model, prohibiting marketplaces from influencing pricing, funding discounts and capping the total sales originating from a group company or a vendor at 25%. This effectively puts a stop to the creative workarounds being used to influence pricing in the marketplace model. Is it time to say goodbye to the great Indian online sales then?
Anticipating a slowdown, the sites have started to revisit their business models. So what strategies will be successful in the new paradigm? For inspiration, we can look at the models adapted by winners in China and the West. Some of these have already been introduced in India, albeit they are in early stages.
Monetising the seller base: Alibaba’s site Taobao operates as a marketplace where neither the seller nor the buyer pays a fee for the transaction. Rather, the seven million active sellers on Taobao pay for store fronts and search ads to rank higher on the site’s search engine, generating advertising revenue for Alibaba, like Google’s model. In order to build a wide seller base, Taobao offered free listing to sellers. It introduced several features like direct communication between sellers and buyers and an escrow payment account with AliPay.
Subscription-based models: Loyalty services like Amazon Prime are aimed at enhancing stickiness by providing free, reliable and fast shipping experiences. They also offer other hooks such as free digital music, movies and e-books. The focus is to increase the annual purchase at a household level by increasing the number of transactions through repeat purchase of small ticket size items.
Financial income from lending business: Players like Alibaba and Amazon also offer working capital loans to their suppliers on an invitation basis based on data available. It can also be an important lever to expand the supplier base in markets where credit is an issue.
Dedicated platform for big retailers/ brands: Alibaba launched T-Mall, a dedicated space for large brands like Nike, Gap, etc to generate revenue from deposits, annual user fees and sales commissions charged to retailers utilising the site.
This is just a starting list. Many variations and models have been adapted such as flash sales, data mining and content syndication.
However, the winning models in India would not just be a ‘lift and shift’ of the above but would be incubated here. This would entail tackling simple on-ground problems like assisted selling through kiosks for those without access or offering vernacular services. I wouldn’t be surprised if these locally bred innovations would be exported to other markets.
Now, let’s look forward to exciting times ahead and be wooed all over again!
(with inputs from Amitabh Mall, partner and director, BCG)
The author is principal, The Boston Consulting Group