India’s Answer to Amazon
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Summary
Flipkart has grown to become India’s largest ecommerce retailer, with sales of over $2.4 billion and valuation of $7 billion in a period of seven years. The company is a replica of amazon, and has been expanding from books into other segments gradually, thanks to growing internet penetration in the country through mobile. By offering unique solutions such as cash on delivery to its clientele, the company has seen phenomenal growth. However, it now faces competition from Amazon which has entered India in 2013. The paper outlines the functioning of Flipkart and how it has reached its present position, as well as its weaknesses and shortcomings.
Flipkart.com: India’s Answer to Amazon
Introduction
India is one of the fastest growing economies in the world. Along with China, it has emerged as one of the Asian power centers, rising in economic strength over the last two decades. This period has been one of high growth for the country, and has led to the growth of IT and internet related industries over the last decade.
As India’s potential as a marketplace has grown, many entrepreneurs saw the opportunity to bring e-commerce to India. One such success story has been Flipkart Internet services. The company has become the equivalent of Amazon in India, starting from selling books to becoming the largest Indian online marketplace. In the process, it has reached a valuation of over $5 billion, through its latest round of funding in September 2014, on annual sales of over $2.5 billion. The company is targeting $4 billion in sales revenue by the end of the current fiscal year, making it the largest e-commerce company in India.
Flipkart was started in Bangalore, India in 2007 by Sachin and Binny Bansal, who had previously worked in Amazon. The objective initially was to start a site to compare offers from various e-commerce sites. However, finding a paucity of e-commerce sites, they chose to launch an e-commerce portal themselves. Flipkart.com initially started selling books and music online, and in stages grew to add electronics, mobile phones, television and other appliances, and fashion to its basket of products (G2Mi, 2014).
The company acquired venture capital funding from Tiger Global, Accel Partners and South Africa’s Naspers among others. The last round of funding in July 2014 was for $1 billion and gave the company a valuation of approximately $7 billion (Rai, 2014). The company is reportedly looking for another round of funding for approximately $1.5 billion at a valuation of $10 billion (Nair, 2014), after reaching record sales in October through its mega-sale, dubbed the 1 Billion Sales Day. Flipkart also acquired Myntra, a fashion e-commerce retailer in May 2014 in order to improve its presence in fashion and accessories segments (Informationweek, May 2014; Sharma, 2014). Myntra, (which is also based in Bangalore like Flipkart), has a tie-up with over 200 brands to sell their products on its platform (Fatima, 2014). Earlier, Flipkart acquired Letsbuy, an e-commerce retailer of electronics and appliances for estimated $25 million in 2012. This helped boost Flipkart’s product offerings in the electronics and appliances space.
Analysis of the Company
Customer Profiles
Internet and e-commerce have grown phenomenally in the last decade in India, with numbers increasing at a rate of nearly 20 per cent every year. At present, internet penetration has reached 10 per cent of the population in India, and there remains tremendous scope for further growth. 75% of the online population is from 15-34 age groups, which is driving the success of the e-commerce industry. The penetration of internet users mainly in urban centers has increased significantly due to the addition of 3G data services. Combined with the penetration of smartphones, e-commerce retailers have launched apps to tap into this growing population of smartphone users to build a significant customer base. However, customers are still wary of using online payment options and Flipkart saw phenomenal growth after it added the Cash on Delivery (COD) option in its logistics services. Today, COD accounts for a significant portion of transactions for all ecommerce retailers (Iyer, 2010).
Customers are also attuned to the “sale” mentality, meaning that sales peak during discount and festive offers. A few years ago, Future Retail, a brick and mortar retail chain launched “The Cheapest Day” concept in its Big Bazaar stores and saw phenomenal peak in demand (Moneycontrol, 2008). Ecommerce retailers have translated the same into online shopping days similar to the Black Friday sales organized the day after Thanksgiving in the US. Flipkart also organized a similar Billion Sale day in October 2014. Unfortunately, the company saw a lot more negative publicity for the event than anticipated as the site crashed several times and most of the products that were supposed to be available at deep discounts did not show up on the screen. In addition, many shoppers reported having problems with payments and had emails after the sale canceling their purchases with no explanations given (Rahul, 2014). This created a wave of negative publicity for the company, and the founders had to ultimately respond with an apology email to all their customers (Magotra, 2014).
Value Proposition
The company works on a reseller model, where various retail sellers can register with Myntra and offer their products. Flipkart manages the customer facing front end, transaction and logistics, all in-house. For this it has set up its own logistics division, eKart, and its own payment gateway, Payzippy. With a total of 15 categories at present and more being planned, the site is the largest in India. It is also in the process of attracting foreign retailers to sell directly through its site instead of opting for a retail brick-and-mortar model, using the marketplace model (Pinkerton, 2014). The site is available through both web and mobile based interfaces, and has a strong presence across tier 2 and tier 3 cities in India. The company offers products at discounted prices with free home delivery and the option of payment on delivery, with a wide range of products to choose from. These constitute the value proposition of the company. They can be listed as follows:
- Wide range of products
- Free delivery
- Cash on Delivery option
- Best discounted prices
It claims access to over 22 million internet users registered on its site and through its application, out of the 240 million internet population of India. It claims that these 22 million customers make up 80 per cent of the online buying public in the country (InformationWeek, July 2014).
Site Functionality
The site functionality is divided into two parts, since the ecommerce retailer also has a mobile app that functions as a storefront.
Website:
Image 1: Flipkart website (Image courtesy: Flipkart.com, 2014)
The screenshot depicts the Flipkart.com website and the categorizations of the merchandise can be clearly seen. The site has quick-connect buttons to the most popular categories and a variety of offers and promotions are listed on the right side of the screen. The top of the page features a search option for customers looking for a specific product. The site also offers categorization based on make, price and features, and comparison between products.
Image 2: Flipkart typical product display page (Image courtesy: Flipkart.com, 2014)
Mobile Application: This is presently available on the Android platform through the Play Store. The app is a full-fledged one and allows customers to buy directly using the app, complete payments and check the status of their order, etc.
Flipkart’s Core Business functions and revenue model
Flipkart originally started out as an e-reseller, buying goods from the manufacturers and then selling them on its site. Due to concerns related to foreign direct investment in domestic retail not being in line with present government policy, it separated the parent company and the ecommerce retail operations. Last year, the company also launched its marketplace model, where third party retailers can directly register and display their products. All transactions take place directly with the retailer and Flipkart is only responsible for the delivery of the product to the end customer. In this, Flipkart functions like a platform or enabler, without involving its funds in purchase or sale of the goods. This is likely to boost Flipkart’s gross transaction value without adversely affecting its cash flow. In a few years, Flipkart will move to this model completely and will no longer subsidize the merchandise, enabling it to make profits. This is the same path that was followed by Amazon. At this point, Flipkart may even launch its own products in the market through its site.
Flipkart’s E-marketing Strategy
Like any online retailer, Flipkart’s marketing strategy was initially focused on internet users. The logic was that since these customers are already familiar with the internet, they are more likely to buy online. Also, online shoppers tend to be comfortable with using credit or debit cards for their online transactions (Bapna, 2012). The company built up a significant presence through Twitter, Facebook and online marketing. However, the company needed to expand its user base and therefore started offering Cash on Delivery (COD) payment services (Hindustan Times, 2011). Now, anyone could buy online and pay when the merchandise was delivered. Therefore, the company started targeting a wider audience – students, housewives, retired people, etc. The rapid growth of data service through 3G networks also assisted this targeting.
Therefore, in addition to its online marketing through social media sites, affiliate marketing, internet ads and mobile, Flipkart launched television and print advertising. Through these, it started showcasing select offers and products offered exclusively on Flipkart as well as to announce its special “Sale” deep discount days when a wide range of merchandise would be available at heavy discounts. Recognizing the value of on the ground branding, it launched EKart, its own logistics service, which delivered merchandise to customers (Peer, 2014). The vehicles of EKart – two-wheeler scooters and four-wheel vans and light trucks – were distinctively labeled with the EKart and Flipkart colors and logos to build visibility (Socialsamosa, 2012). The logic behind the creation of its own transportation was that seeing a Flipkart delivery in the neighborhood would encourage others to buy as well.
Thus, Flipkart’s marketing took on a three-pronged strategy – online, traditional media and on the ground. In addition, it follows a CRM strategy of targeting existing customers based on previous purchase history through online ads (delivered through cookies), remarketing, newsletters and on-site advertising. Remarketing is essentially reaching out to customers who viewed products on your site but ultimately did not buy. Its mobile app is available for download on Android (the most popular smartphone OS in India), and this serves as an additional channel to push marketing messages to target audiences (Saxena, 2013).
Discussion
In order to understand the business perspective of Flipkart and its overall business, it is important to first get an understanding of the relative strengths and weaknesses of Flipkart.
SWOT analysis of Flipkart
Strengths:
- Largest ecommerce retailer in the country today
- Wide selection of product categories and products available
- Offers deep discounting which attracts customers
- Has high customer recall and presence among online shoppers
- Has created own logistics arm and payment gateway to integrate and consolidate operations for cost benefits.
Weaknesses:
- Company is growing too rapidly, focusing on customer acquisition without considering losses on business and negative cash flows.
- Using funding received to fuel discounts in sales to the tune of over $10 million a month, burning its cash rapidly
- At this rate, Flipkart will constantly require fresh funding at increasingly frequent intervals to keep the business going.
- Systems and back-end IT infrastructure still not strong enough to support the high fluctuations in demand caused by “sale” events.
Opportunities:
- As India’s largest ecommerce retailer, it has a strong positioning in the minds of consumers
- It can expand into many more product categories and services
- Has created a marketplace platform in which third party retailers can directly sell through Flipkart, and Flipkart will only manage logistics.
- Can help ecommerce reach even tier 3 cities due to its mobile application, where internet ecommerce penetration is relatively low
Threats:
- Amazon has entered India and is posing stiff competition to flipkart, whose business model is based on the former.
- Domestic competitors like Snapdeal and Jabong are looking to take advantage of the negative publicity generated by Flipkart’s fiasco during the last sale event.
- With repeated poor experiences, customers may move away from Flipkart and gravitate towards competitors, negating the efforts that Flipkart has taken to make customers familiar with online shopping.
- Opposition from some retailers and brands may force Flipkart to reduce the extent of its discounts, thereby losing customers to its rivals.
- With multiple rounds of funding, the founders are now minority stakeholders and may have to take decisions only approved by the various venture capital investors. Some of these may not be favorable to customers and result in lower sales in future.
Customer Concerns About Flipkart
While Flipkart is the largest e-commerce retailer in India, it is not without its share of problems. Its recent Sales fiasco has made many of its customers skeptical, and has created significant disenchantment even among vendors. There are also concerns about the genuineness of goods being shipped through Flipkart, more so with the setting up of the Marketplace model where Flipkart does not take responsibility for the merchandise quality. Other concerns include the possibility of data theft of customers and its subsequent misuse. These are issues that Flipkart is working to address in the long term.
Conclusion
References
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