Stay Away From E-Commerce!
When NOT to Invest in E-Commerce
E-Commerce at present seems to be the shortest path to a success story for any dewy eyed “Entrepreneur”, as it seems like a low-investment-fast-growth industry. On the contrary, like any other industry, even e-commerce has a lot of potholes on the road to success. As everyone is jumping on the bandwagon of E-Commerce, it is getting cluttered, and just like any other path, it becomes really difficult driving. Read On to learn about the reasons of why not to enter the E-Commerce Action In India:
You Can Work With Low Profit Margins
The first issue any e-commerce website will face is the low-profit-margin-sustenance. This may shock anyone who is yet to test waters in the e-commerce industry of India, but as a matter of fact, almost all Shops, Karts, Marts (and their hearts) are bleeding. They are burning huge amounts just to get consumers to their shops and keep them their. Competition is increasing by the day and to increase the user-base they have to invest a lot of the returns back into the business.
Solution: Either enter a market when you know that you have a good profit margin else enter a market where you have a target consumer advantage, i.e. you already have a medium to connect to the target audience directly. Immidiate release of stocked goods, always helps in low margin-markets.
Decathlon.com had physical stores before they entered the E-Commerce scene. They were prepared with the right target audience coming into their stores each and everyday, all they had to do was introduce them to their E-Commerce store. As they have economy of quantity, they overcome the issues of margin.
You Have Never Heard of Unit Economy
In 80% of the cases where I would discuss business models with perspective E-Commerce Investors, they would never discuss Payment Gateway Charges, Packaging, Courier, Cataloging Costs or costs involved in Photography. Even though on larger terms, these costs may not be visible but when you take unit economy into consideration, they pile up.
When a product’s selling price is low, the margins available will be low, this will lead to a loss in transaction when selling such products online. This is due to additional costs incurred in Shipping, Payment Gateway Charges, Packaging, etc. Transaction-Profit Margins on different category segments are different, Books have very less Transaction-Profit margin, as they are bulky and will cost more to ship, same goes for other bulky items. Apparals have high Transaction-Profit Margins as they are easier to ship as well as have higher profit margins.
To make the term “Unit Economy” even easier to understand, it is the net profit you are earning for each individual sale, rather than considering your profits according to overall Profit you are earning on all sales combined. Selling products which have high Transaction-Profit Margin is a sane choice. This has been realized by Indian Market, as the e-commerce start-ups which did not work with Unit-Economy in mind have been wiped out, for eg. AllSchoolStuff.com, IndiaPlaza.com, or Rock.in.
If you understand Unit-Economy of each and every segment of your product, only then will it be wise to get into the E-Commerce Business in India.
You Think Marketing & IT Not Essential
In 2013 only 11% India’s population had access to Internet. This 11% comes to 37 Million Users, and these users are not searching for you. They will have to to be told about you and effectively.
You need to have a proper IT team, as in E-Commerce everything is dependent on technology. From setting up the store itself, integrating Payment Gateway & Courier Services, Tracking Sales, etc. everything needs to be done on the platform itself. IT is the backbone of any E-Commerce Store. Invest in IT as much as possible so that you have a solid platform on which you can build your business.
Marketing is really essential in order to grab attention of your users, and marketing in E-Commerce is different ball game altogether. You will be hearing about terms such as SEO, SMM, SEM, SMO, PPC, etc. You can learn it yourself, or better you can keep someone who already has experience in the field of Online Marketing close to you. In the kind of competition it is as of now for almost every keyword that has traffic, getting rank #1 on Google is like snatching meat from a Lion. And always remember, Online Marketing is a constant effort.
So If You Think You Will Be Investing Maximum in Anything Other Than IT & Marketing, Then Please Do Not Think of Investing.
In the present E-Commerce Industry, there have been loads of Crash & Burn Websites, which have launched, got investment and then shut down soon after. Few examples of such websites are AllSchoolStuff.com, IndiaPlaza.com, etc. If you work out your business model well, then you could be aquired, like LetsBuy or Myntra. In which case you have hit gold. Make sure that you re-think about the above points carefully before investing. Getting visibility needs a lot of marketing dollars, you will need investor in order to get some action from the huge E-Commerce Game. If you already have raised investor money then there’s no point reading this — you can’t back out now.
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