ecommerce in India – The Real Challenges?

[Three part series, contributed by Anshul of Designgrill analyzing the state of ecommerce in India]

India is yet to witness a breakthrough ecommerce success story particularly in online retail. There are number of barriers, most of them out of your control, which makes this space difficult to conquer. Travel and Matrimony ventures are doing relatively good and we will see why the case is so.

A successful business requires a lot of auxiliary services which supports the main business. Internet based businesses are no different. In effect, the companies providing these services necessarily become your business partners and that too, interestingly, in revenues and not profits. If you are a garage based startup, sorting these things out will be bigger challenge than getting visitors to your site. You will have to invest significant amount of time and energy in just setting up basic things.

India still hasn’t developed a matured ecosystem which will help small, low on fund startups to grow. At some point or the other, you will have to get your hand dirty and make efforts to put all these auxiliary services in place. Not only you have to look for services with minimum service level but also make sure that it doesn’t put a hole in your pocket.

An eBusiness is a normal business with internet as a medium. This doesn’t change basics of the business but instead you have one more responsibility to make it work on the internet.

Following are some of the infrastructural barriers responsible for slow growth of eCommerce in India. Some of these even present new business opportunities.

  1. Payment Collection: You could end up giving a significant share of your revenue here (~4% or more) even when you get paid by netbanking. With a business of thin margin, this effectively means you are parting away with almost half of your profits. Fraudulent charges, chargebacks etc. all become merchant’s responsibility and hence to be accounted for in the business model.
    To add to it, you still don’t get that world class service which gives a seamless experience for users. They might be greeted by a poorly designed landing page of your gateway which will ask a million questions even if user wants to pay by netbanking. This might lead to low conversion rates.
  2. Logistics: You have to deliver the product, safe and secure, in the hands of the right guy in right time frame. Reaching this Holy Grail with not spending too much is a dream for Indian ecommerce initiatives. Regular post doesn’t offer an acceptable service level, couriers have high charges and limited reach. Initially, you might have to take insurance for high value shipped articles increasing the cost. Low value articles will have significant shipping cost which will make them costly.
  3. Vendor Management: However advanced your system may be, you will have to come down and deal in an inefficient system for inventory management. This will slow you down drastically. Most of them won’t carry any digital data for their products. No nice looking photographs, no digital data sheet, no mechanism to check for daily prices, availability to keep your site updated.
  4. Taxation: Octroi, entry tax, VAT and lots of state specific forms which accompany them. This can be confusing at times with lots of exceptions and special rules.

Finding a solution to these problems requires experience – meaning the ride will be very bumpy for a garage startup.

Travel industry doesn’t have a problem of logistics. Their vendors have very advanced reservations system in place already which will tell you about real-time pricing and availability. They have long been accepting card payments and it’s now part of their business model. All the taxes levied to them are usually easy to calculate as it comes from their vendor itself. This domain is already conquered.

The challenge left is in the area of selling tangible goods. What’s your take on these issues?

Part 2: Understanding Payment collection systems [April 16th]

Part 3: Misunderstood Indian Internet User [April 20th]

Must Read: ecommerce in india: IRCTC still contributes 1/3rd – Something to worry about?

Forum Discussion: Challenges to ecommerrce in India | Comparison of Payment Gateways in India | Payment Gateway – USSD Processing

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