Saturday, 12 May 2018

Flipkart, Wal-Mart, Amazon and the Future of Indian E-Commerce

For a long time, we have been told that the purpose of a business is to make profits. The neoclassical theories have taught us that the objective of a firm is maximisation of profits. But if Sachin Bansal and Binny Bansal were to write their autobiography, it could very well be titled ‘How to become a billionaire by running a thousand crore loss making business.’

Indeed, the story of Flipkart and their journey from a two bedroom apartment at Bengaluru to a firm now valued at $20 billion is an interesting case study for entrepreneurs. Both Sachin Bansal and Binny Bansal, who were batch-mates at IIT Delhi, started their career as interns in Amazon. In 2007, they dropped out of Amazon and started their online business of book selling with a modest capital of Rs 4 lakhs. Their business model comprised of taking orders for buying books online and delivering them to the doorstep on a two wheeler. Their big break came when the Venture Capital Fund Accel Partners invested $800,000 in seed capital in 2008 and followed it up with more than $100 million in subsequent rounds. Flipkart also got huge investments from Japan based Softbank, South Africa based Naspers, New York based Tiger Global, Ebay, Microsoft, Google and China based Tencent Holdings. The company eventually moved into electronics, mobiles, games, fashion, footwear, toys, music and movies and became a dominant player in all these categories.

Along the journey, they introduced innovative approaches like Cash-On-Delivery (COD), created a strong logistic and delivery network through Ekart and created excitement in the market through huge sales driven events like ‘Big Billion Day’. The company also made several strategic acquisitions like Myntra, Jabong, PhonePe and All these strategic measures and acquisitions helped them to stay ahead of Amazon, Snapdeal and Paytm who also had big investor backings and aggressive approach in the Indian E-Commerce market.

Flipkart now boasts of 8.3 lakh square feet of central office space in Bengaluru and other offices in Delhi and Mumbai. The corporate office has shifted to Singapore. The consolidated revenue of Flipkart jumped to Rs 19,855 Crore in 2017 but the consolidated loss also jumped to Rs 8,770 Crore. It got a resounding appreciation for its success story when Wal-Mart picked up 77% of stake in return for $16 billion, thus valuing the company at $20 billion.

But the story of E-Commerce in India has been fraught with challenges. The E-Commerce Industry in India started getting traction when Sify bought Rajesh Jain’s for Rs 500 Crore in 2000 in a mixed stock-and-cash deal. Soon, we had several big bang launches like,,,,, and Most of them were engaged in grabbing eyeballs for their dotcom venture by giving gifts and lucrative discounts to customers. Some of them survived the long haul but many like Bababazar, Indya and HomeTrade either got closed down or were acquired by others.

Flipkart, coincidentally, started their journey in an interesting period. Mobiles were getting popular due to reduction in prices, the internet connectivity was getting better with introduction of 2G, 3G and 4G technology and cost of accessing the Internet was falling due to aggressive pricing by Reliance Jio. The number of mobile phone users is all set to cross the 800 million mark by 2019, out which half of them will be smartphone users. The number of Internet users is expected to cross 500 million in 2018.     
Shopping through the Internet is also on the rise. The E-Commerce Market has seen transactions worth $55 billion in the last fiscal year. This market is expected to register a 30 percent growth in this fiscal year to touch $72 billion. In the long term, the Indian E-Commerce Market is poised to touch $200 billion by 2025. 

Flipkart has been the dominant player in the Indian E-Commerce market with Amazon giving them a fierce competition. Snapdeal lost out their position due to funding problems and a spate of resignations at the top level. However, they are trying to make a comeback. Paytm, Shopclues, Infibeam and others are still fringe players who are battling it out to get business from niche areas.

With Wal-Mart buying out Flipkart, the Indian E-Commerce Market is sure to see some stiff competition. Wal-Mart has several advantages over Amazon and other online retailers. They have their own private labels which they sell at hyper competitive prices. With Flipkart in their kitty, Wal-Mart is both a physical retailer and online retailer thus having tremendous economies-of-scale. Wal-Mart also has the capability to take fresh farm produce through very sophisticated cold chains, which presently Amazon and the other online retailers do not have.

The entry of Walmart into online retailing is definitely a great news for shoppers as they will get great bargains from both Amazon and Walmart. But there are concerns that the small and medium scale producers and traders might end up suffering losses as Amazon and Wal-Mart both try to extract huge margins from them in order to give better discounts to customers. This is an area where the Government and Regulator need to keep a strong vigil so that the entrepreneurs in India do not end up closing down their shutters. 

Digital Marketing 2.0 --- Creating Effective Marketing Campaigns at Optimal Budget

In the Mobile Phone Handset Market, the brands which have the highest spend on advertising are Samsung, Vivo and Oppo. Samsung spends close to Rs 500 Crore on promoting mobile phone brands in India. Vivo spent Rs 2,199 Crore to get a five year contract of sponsoring IPL tournament. Oppo spent Rs 1079 Crore to get sponsorship rights of Indian Cricket Team for five years. Yet Samsung is number two in terms of market share and both Oppo and Vivo are far behind with market shares of 6% each. Xiaomi, who holds the number one position in mobile handset market with a market share of 25%, actually spends a fraction of what Samsung, Vivo and Oppo spends to promote their brand.
The area where Xiaomi beats competitors like Samsung, Vivo and Oppo hands down is Digital Marketing. Xiaomi stepped into the Indian markets with very innovative marketing strategies. They kept the cost of marketing very low by primarily investing on digital marketing and taking the services of Flipkart for sales and distribution. They opted for a disruptive marketing strategy called ‘Flash Sales’ wherein a limited quantity of products were made available every week. By keeping the cost of marketing and promotion low, they were able to offer products at comparatively lower prices and with high end features. Their aggressive digital marketing strategy ensured that they gained a considerable reach among their target consumers. The consumers also found ‘value-for-money’ in the range of products offered by Xiaomi, thus gaining the company a high degree of loyalty.
Digital Marketing has become very powerful and pervasive with the increase in smartphone usage, massive drop in costs of data packs and rock bottom prices of smart phones. There are 3.5 billion searches conducted through Google every day. There are 350 million photos uploaded in Facebook every day. There are 5 billion videos watched on YouTube every day. There are 500 million tweets sent through Twitter ever day. There are 55 billion messages sent through WhatsApp every day. The numbers are simply too humongous and very impressive for any brand manager to ignore.
However, there are also challenges in how the power of digital media can be leveraged to maximize the return-on-investment (ROI) from digital marketing campaigns. Google mainly relies on tools like SEO (Search Engine Optimization), SEM (Search Engine Marketing), AdWords, AdSense, Remarketing and Google Analytics to help marketers structure their campaigns. Facebook relies on banner ads, news feed, messenger, boosting tools and event pages to market products and services. YouTube offers tools like in-stream ads, skippable video ads, dedicated channels, cards and mastheads. Twitter has tools like banner ads, periscope and cards to aid in digital marketing. However, with the mass usage of these traditional tools, the digital marketplace is now looking congested and saturated. Brands are having a tough time in getting the desired visibility --- Most of the companies are now spending high amounts of money and getting low return-on-ad-spend (ROAS). No doubt the brand managers and product and service owners are openly voicing their disappointment with digital marketing.
This is exactly where Digital Marketing 2.0 steps in. There are new age tools like Instagram, Pinterest, Tumblr and Snapchat who are giving an alternative platform against the traditional platforms offered by Google, Facebook, YouTube and Twitter. Instagram currently has 800 million users and is poised to touch the billion mark soon. Tumblr has 460 million users, Snapchat has 300 million users and  Pinterest has 150 million monthly active users.
The traditional Indian drinks brand ‘Paper Boat’ has effectively used Instagram to reach out to their target users and drive home their message. This young brand has become very popular with its homely flavours like Aam Panna, Imli ka amlana, Golgappe ka pani, and more, adding to its ever nostalgic array of instant traditional drinks made without artificial preservatives. The Paper Boat Instagram page is a treat to the eyes as well as a heady trip down the childhood days. A combination of cute doodles, two lovely puppies called Hector and Beverages, little visual stories around the brand and childhood memories tell the Paper Boat story in a very loving manner in Instagram posts by Paper Boat.
Tumblr is a micro blogging site that has 226 million blogs, 460 million users, and a highly active and young user base creating engaging content on a daily basis. Tumblr came into limelight in 2012, when Adidas launched an official soccer Tumblr blog and bought placements on the user dashboard. Since then, Coca Cola, Disney, Calvin Klein, Elle, Target, Lexus and many other top brands have been actively using Tumblr for marketing and brand building. Tumblr earns about $50 million in revenues from sponsored posts, sponsored video, sponsored day and carousel units. Tumblr further made headlines when it was acquired by Yahoo in 2013 for $1.1 billion.
Snapchat has been a hot favorite among teenagers and young people with the unique feature of self destructing messages. Another great feature of Snapchat has been the ‘Lenses’ which allow users to add fun real-time special effects and sounds, change their voice in videos, face swap with friends, or even super-impose a face from the photo gallery onto the face. Snapchat is mainly used for movie promotions but there are also brands like Taco Bell, Amazon and Burberry who are making the best use of Snapchat platform to promote their brands.
Pinterest is another creative social media platform that has been lapped up by the brand and product managers. Pinterest is a place where one can organize and share online images that he or she finds interesting or inspiring. Once uploaded or shared on Pinterest, these images become known as “Pins”, which the user can place on customized, themed boards.  Pinterest has a “buy” button that lets users make purchases directly through the app. Pinterest also allows brands to market themselves through “promoted pins”. Pinterest is mainly being used by fashion brands, travel and tourism companies and also media companies to promote their television channels and magazines.
The ‘Digital Marketing 2.0’ also encompasses strategies like ‘Growth Hacking’. Growth Hacking incorporates tools like inbound marketing and lead generation, content marketing, viral marketing and online buzz creation. The company which has most successfully used growth hacking has been Dropbox. Dropbox has used growth hacking to grow at a stupendous pace with minimal investment in marketing efforts. Under the growth hacking strategy, Dropbox started a referral program. They offered incentives to users who would refer the Dropbox services to their friends and acquaintances. The Dropbox signups increased by 60% after they started the referral program. In the next stage of growth hacking strategy, Dropbox offered to give the users a 125 MB increase in storage space if they liked and connected with Dropbox on Facebook or followed the brand on Twitter. They got around 700,000 Twitter followers using this strategy. In the third phase, Dropbox ran a contest called Dropquest. In the contest, users had to go through different puzzles and scavenger hunts. Those who complete and got a place in the top 176 got free space. The announcement on their blog generated quite a lot of Likes and Tweets. Soon Dropbox was a wellknown brand with a huge fan following and a substantial user base.
The technology aided marketing or digital marketing is a very effective tool for marketers and can generate huge returns with optimal cost. The only challenge is that the marketers should carefully select which are the most efficient tools and how they are to be utilized to achieve the target objectives. And if Digital Marketing 1.0 is not working, you always have the tools of Digital Marketing 2.0 to create excitement in the marketplace.