1. Online retail and e-commerce tapping into new markets

Online retail and e-commerce tapping into new markets

Are e-tailers capitalising on the potential that backdoor regions, essentially tier II and III cities, provide?

Updated: November 14, 2017 1:44 PM
Online, retail, e-commerce, new market, online retail, brandwagon, mobile based e-commerce The predominant channels carrying these modes of trade to the backdoor cities can be attributed to internet connectivity and penetration.

Anil Talreja

While there is a general buzz in major cities about consumers using online retail and e-commerce for purchases, the trend is slowly penetrating in ‘backdoor markets’ — tier II and III cities — as well. The predominant channels carrying these modes of trade to the backdoor cities can be attributed to internet connectivity and penetration. The key trends driving e-commerce in India include:

Population mix — a drop in the average age of the person using these platforms
Technology and innovation — growth in smartphone adoption driving mobile based e-commerce
E-wallets — the new payment solutions
Innovations in logistics

Key enablers for online retail and e-commerce

E-commerce could be a huge boon to capitalise on the wide reach of retail players and make their goods available to a much wider customer base. But how can one maximise on it?

Creating awareness: This is the most important enabler for developing backdoor markets. Unless the population in tier II and III recognises the value and benefits for online transactions, the online retail and e-commerce business tends to be unsuccessful.

Retail spend: Current market estimates show that e-commerce makes up 1-2% of the total retail spend in India. However, it is expected that the share of e-commerce in discretion-driven segments such as apparel, footwear, jewellery and consumer electronics is significantly higher. It is likely that both these forms of retail will slowly converge to adopt the best of both. Traditional retail chains have higher technology adoption and have a digital presence. Similarly, e-commerce players will seek to move closer to potential customers and set up experience stores.

Internet penetration and related aspects: If one looks at a city say, Vadodara, the mobile penetration is at an all time high. The four metros are reported to have an internet penetration of 23% within an overarching 11% on an all India basis. Cities with a population of more than one million are accustomed to get high penetration. The Government under the Bharat Net initiative has the precise objective to increase the internet penetration in a short span of time. Recently, it was announced that about 12,000 panchayats in Tamil Nadu will be connected on high speed internet. The gradually rising literacy levels are also resulting in high usage of mobile phones for online retail and e-commerce.

So what is the industry doing to achieve this?

There are several programmes/campaigns that have been launched towards achieving the objective of increasing connectivity in backdoor markets. These companies also have the task of taking the first step towards this initiative and have to be supported by a business case. One of the early ways of marketing this initiative was to have advertisement campaigns targeted at the section of this population to show benefits that they can get from internet connectivity. Generally people travel to metro cities for their livelihood with their families/extended families living in these markets. The fact that one of the family members is working in a metro city is enough for the family back home to not only be aware of the benefits of internet connectivity but also reap benefits of online retail and e-commerce.

Another very important catalyst to the success of online retail is the capability of companies to deliver products in backdoor regions. Without logistics support as well as delivery centres in these towns, it is not possible for online retail/e-commerce to grow. It is like saying that a customer places an order using the online channel but has no idea or confidence whether the product will reach her. In that case she will not be encouraged to place the order in the first instance. On the other hand, if she is convinced that the company has a delivery centre in her neighbourhood or has representatives who can deliver, she will be inclined to proceed with her order. Thus, companies are advertising in their own way that they have the capability and bandwidth to deliver at the doorstep of a customer in these markets besides metro cities.

The author is partner, Deloitte Haskins & Sells LLP

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