Digital commerce sales in India have remained flat, so digital commerce companies need to identify a sustainable growth model that can be achieved in a defined time frame, according to Gartner, Inc. One of the challenges was that leading marketplaces cut back on promotions and discounts after the regulation banning price competition came out in March 2016.
“Digital commerce is at an early stage in India, and consumers are value-conscious, so they are enticed when there are big promotions and steep discounts.” said Gene Alvarez, managing vice president at Gartner.
“However, sales stalled once incentives were not present, challenging the performance of digital commerce players. This is partially a result of the continuous discounts at online marketplaces that are competing fiercely to gain market share, and which sets them to an incentive-driven growth model.”
Related Post: Impact of demonetization of notes on e-commerce and startups
None of the digital commerce companies in India are profitable. They typically earn between 5-15 percent commissions of product sales, but the massive discounts on top of the investment needed to expand to more geographies saw those companies losing money. This can be a serious problem when the capital market tightens up.
“The problem is being neglected when there is plenty of funding, and companies can live off sufficient capital. Once the market tightens, it is a survival game that only those that watch the bottom line and cash flows will win in the end”, said Mr. Alvarez. “There is a need to go back to the basics, that is, to operate on a sustainable growth model. Of which, customer experience and data-driven incentives are two fundamental factors.”
Related Post: Deep discounts not a viable business model for start-ups, says Raghuram Rajan
First factor is customer experience: This is the most important differentiator of a digital commerce service as price becomes transparent across sites. Discounts will only retain customers as long as the promotion lasts, while good customer experience will make people come back and purchase more even when there is no promotion. Good customer experience will also entice new customers as word-of-mouth spreads, and visitors experience the service themselves. Customer experience goes beyond a frictionless shopping experience on the website or in the mobile app, and includes delivery, custom service, returns, retail discovery, customer ratings and reviews.
Related Post: Top 5 pitfalls Indian e-commerce sellers should look out for
The other is data-driven incentives: Promotions and discounts are still important techniques to drive sales. However, they need to have positive return on investments (ROIs). Businesses can not only recover the cost of incentives but also make a profit. This requires businesses to personalize incentives based on shoppers’ profiles and purchasing propensity, and only give out the amount that is enough to trigger a purchase but not too much to lose money. This capability takes time to build as it requires data analytics and personalization of technologies, built on the data collected about the shoppers.
Related Post: 5 ways Amazon is nailing the e-commerce business in India
Image credit: MyCityWeb
