Bright Idea for eCommerce to Cut Down the Customer Acquisition Cost

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The multi-billion dollar Indian eCommerce industry is witnessing the battle of supremacy among the big daddies like Amazon and Flipkart. They have been embroiled in multiple rounds of discount wars, feature additions to their applications, obtaining exclusive selling rights of certain brands and much more. The entry of another Goliath, Tata CliQ, and other mushrooming startups, means that this battle is going to further intensify for a greater slice of the lucrative Indian eCommerce pie.

Amazing business forecast, but an empty revenue bucket

Marketing research firm eMarketer highlights that eCommerce sales in India are expected to grow from $14 billion in 2015 to $55 billion in 2018. While the competition is cutthroat, there’s another reason why the giants are not able to post exceptional revenues on their yearly report cards. Thinking that technology and logistics are eating up the funds would not be precise because it is the cost of acquiring customers that is actually stopping them from capitalizing this glorious opportunity.

Why spend so much?

The acquisition cost is climbing rapidly due to the intense competition between seasoned companies and funded players. Big eCommerce players are spending from 280 to a whopping 1200 INR on a single customer acquisition and still fail to keep them loyal.

There are thousands of products available on each of these sites, spread across hundreds of sub-categories, grouped into numerous categories. Targeting the audience, who are also varied for each of these categories, is where the time and effort are put, and in turn, cost.

The fact of the matter is that customers don’t really care how many products a site has, or how many products are within each category. All they want is a place where they can find the one thing that they are looking for.

That’s where new players like DailyObjects, which only sell mobile or laptop covers are gaining a lot of traction. Amazon, Flipkart, and all other major players sell gifting items, but GiftingNation, an eCommerce platform that focuses on only gift items is gaining popularity since they master this specific category and tailor product listings to individual preferences. There are many other portals that are specializing in a single field, Lenskart and Voonik to name a few who are also capitalizing on this.

Since these folks are into a niche category, targeting the user is rather simpler, and thus their customer acquisition cost is drastically reduced.

Behind the scenes

Let us take a closer look at what exactly comprises the eCommerce business; Front-end Interface, Back-end Technology, Seller Marketplace and Logistics are the main components. Big eCommerce players like Amazon and Flipkart have mastered the art of putting efficient logistics and a sized seller marketplace.

However, a good chunk of time, effort and money is put into developing and maintaining the front-end interface, which includes both the desktop and mobile version.

They agree that technology is their core strength and if they want to turn their losses into profits then it is their strength that they will have to play.

Open the floodgates, harvest the benefits

Imagine a scenario where the most painstaking element is taken up by someone else — Maintaining the front end and Acquiring customers.

Take for instance, someone wants to open an online store for perfumes. They can use Flipkart’s product listing API to get only the perfumes listed. They can do the same with any other online player who gives such an open API.

All they need now is to create a front end (mobile/desktop) to present this information and get their business going. Everything else, starting from inventory management, all the way up to delivering it to the customer’s doorstep is taken care of by the provider. The affiliate programs of these providers will ensure that they are adequately compensated for any purchase made through their application.

Let’s look at it from the provider’s angle now. Customer acquisition is no longer their headache. They do not require a front end either once many more smaller players cater to each of their categories. The Flipkarts and Amazons of the world can lean back and watch as they get more customers, in turn, more purchases, and in turn, more revenue with absolutely no acquisition expense.

All they need is an affiliate partnership with such entities, ensure that their product API is more real time and that the entire purchase journey happens seamlessly by probably opening up their Order API also, so that a user does not have to come to their site, even to make the payment. But yet, the money flows through them itself.

In the nutshell…

This will eliminate the customer acquisition cost for the big players, and they have to share only 12% margin on profits with small players, which is far lesser than their current customer acquisition spends. Plus, now they have to just deal with their already robust backend, their sized seller marketplace, and efficient delivery system. Hundreds of smaller players will be empowered to use those APIs to create thousands of stores.

This is a win-win situation for everyone, as smaller players don’t have to invest resources in creating a marketplace from scratch. Moreover, they don’t have to be worried about maintaining a warehouse and delivery system, which will be taken care by the big daddies.

Food for thought…

Japanese eCommerce heavyweight Rakuten is ready to set shop in India, followed by StoreKing, Kickstart, Tearbox. The competition is only going to heat up for the biggies, and therefore the smart move would be to diversify and look for new channels to generate revenues by enabling the smaller fishes to create new niche market opportunities.