The Next Wave of E-Commerce — The Giant India 2.0 Opportunity
The Ankur Capital team caught up with Bharath Ram (VP — Product, Engineering and Design, Flipkart), Mani Bhushan (Business Head of E-commerce and Surface, Blue Dart) and Sateesh Nukala (Co-Founder of our portfolio company — BigHaat) to discuss how they see the next billion market from their unique lines of work.
Bharath touched upon the three most important questions that need to be answered to understand the India 2.0 user base — first, how do they discover products?; second, what are these products?; and third, what value proposition works for the next billion users?
An important consideration involved is trust. This is largely owing to the fact that unlike in physical retail, in e-commerce there is a time lag between exchange of money and receipt of the goods by the user — they cannot see or feel the product until its delivered to them which is after the purchase decision has been made and in several cases, payment is completed. Value of money is an equally important consideration to retain customers onto an online buying channel.
Sateesh spoke of the two channels through which BigHaat reaches and understands his customer which are farmers — digital and physical. While the digital platform for agri-inputs for farmers is a necessary innovation in the space, they also have a physical presence in certain clusters which helps build deeper trust. The challenges that the customers face are accessibility to quality inputs, choice, availability and pricing. Acquiring customers is just one piece of the puzzle. It is equally important to create trust and win loyalty of the farmers and keep offering better services to farmers. BigHaat has seen a lot of young farmers come onto their platform and have been able to grow their presence organically by leveraging the strong network of farmers.
Bharath further apprised us of some of the differences in consumption trends in rural and urban markets in India. For instance, the demand for high-end smart phones is understandably greater in urban cities but for categories like fashion and apparel, it is the tier II and tier III markets that are driving a large proportion of sales.
Mani, having a bird’s eye view of consumption trends across India owing to his experience with BlueDart, offered valuable insights. Luxury items have not been able to penetrate smaller towns and still there is a concentration of demand from urban areas. Similar is the case with white goods and non-urban users still prefer traditional channels to purchase high-value goods. Another distinction is that in non-urban areas, a larger percentage of orders are cash-on-delivery.
In terms of whether brands and branded goods is an important factor for India 2.0 users, Sateesh told us that the majority of farmers use his platform to be able to procure branded goods (especially in categories such as seeds and fertilizers) which give an assurance of quality Sateesh. It is only once trust is established, that the users feel comfortable to purchase unbranded, commoditized goods.
“For e-commerce players, it is important to meet demands and expectations of consumer”
Bharath offered a slightly different take on the subject. He mentioned that demand for brands depends on the category of products. For instance, in categories like shoes and apparel — brands matter but when it comes to demand for mobile phones in India 2.0 — commoditized goods still are in greater demand. Also, echoing Mani’s view, he added that COD orders are in fact more popular in India 2.0. For these users, high delivery fees can be a deterrent and it is important that companies do not add hidden costs — this is a key area where organizations can create value.
Fulfilment of e-commerce orders is still a challenge in India 2.0. While this aspect is being addressed by logistics providers in the country, some issues still remain. For instance, one of the problems is the availability of enough trained manpower in these areas. However, reverse migration due to Covid might bring about a positive change, at least in the near future. High COD orders come with their own set of problems — large amount of cash being transported by logistics personnel is a continual issue and can pose a physical security threat for the on-ground fulfilment personnel. Other set of issues stem from a large number of rejected and return orders. Accordingly, reverse logistics has become a key focus area for service providers in India 2.0.
Having said that, logistics in India 2.0 has improved significantly in recent years. Orders are being fulfilled all across the country and almost all pincodes are covered by the large players. A large contributor towards this has been the ‘UDAN’ scheme which has significantly improved regional connectivity across the country. Aircrafts are now reaching smaller towns ensuring that goods are delivered in previously unserviceable areas of the country. Another contributing factor has also been that the as e-commerce orders witness a surge in a particular area, large e-commerce players are increasingly outsourcing the fulfilment activities to logistics companies. We have also witnessed consolidation in the industry depending on factors such as demand and volume of goods which makes it difficult for smaller players to service India 2.0.
For BigHaat, their backend logistics have evolved over the years. Back in 2015, they were solely reliant on IndiaPost but due to the emergence of several players who cater to India 2.0, they now work with 22–23 partners to be able to deliver anywhere within promised timelines.
The panel also discussed some emerging trends and how they have and will impact the India 2.0 e-ommerce market. While group buying and consolidation of orders may be an emerging trend which drives up order value, it is still in an experimental stage. Upselling and cross-selling are other ways to drive up the average order values. Another trend we have noticed over the years is heavy discounts being offered by e-commerce players to attract new customers. Sateesh agreed that discounts are an incentive but re-iterated that availability of product is the biggest challenge, especially since a lot of customers are first time online consumers. Choice and availability are important factors.
On the aspect of how to improve digital literacy and access to information, Bharath told us about how only 1 out of 20 customers read the product description but a lot more watch the product videos to understand the products. The audio-visual medium is a lot more appealing to the next billion market. Further, Flipkart has been made available in regional languages to reach larger population. Mani then spoke of some of the return supply chain and reverse logistics issues. Trust is the key factor here — instances of returns are going down because there is a stronger focus on meeting the demands of consumers. Logistics and e-commerce players are now working together to ensure such cases are reduced. Bharath added that while dealing with such instances, they never assume mal-intent on part of the customers and instead have an accommodative approach to the problem and try to understand the users’ perspective.
Closing out the discussion, Bharath emphasized on how we can learn use the China story as a precedent especially since where we are today, they were 8 years ago when they witnessed a new sea of digital natives. Mani and Sateesh both told us how they are extremely bullish on the India 2.0 market and will continue to focus on the growth of this market.
“India 2.0 is not a futuristic market, it is already a market for e-commerce and logistics service providers”
If you are innovating with a focus on disrupting the next billion market in India, we would love to hear about what you are doing and encourage you to apply for our next session of Funding Friday, where our team spends quality time with each entrepreneur to understand how they are building the future! Apply here.
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