Darpan Munjal is CTO (eCommerce) @ IndiaTimes and is a veteran in ecommerce space. Prior to joining IndiaTimes, he was Divisional Vice President (eCommerce) at Sears and led several key initiatives that helped in taking the eCommerce business at Sears to a leadership level within the retail industry.
In this interview, Darpan expresses his opinions on state of e-commerce/m-commerce in India and the challenges facing the industry.
In your opinion, what are the crucial factors that can trigger the growth of ecommerce in India?
There have been a number of factors pointed out by various experts on this topic and although I agree with quite a few of those, it is my belief that the largest factor for relatively slow adoption of eCommerce in India can be attributed to the state of eCommerce industry itself. This has been a self inflicted pain to a large extent.
If we think about the shortcuts taken by online retailers in customer service, end to end experience and the lapses in execution, it should come as no surprise that consumers have been using this channel very cautiously. Human nature (or consumer behavior), in general, is resistant to change. If we look at the success story of any unique product or service that was launched and required a change in consumer behavior, the ones that were successful were those which were able to win customer’s trust and offer a clear value proposition to the customer.
Whether it was the iPod when it was first launched or satellite TV when it was first unveiled in India or the recent shift towards grocery shopping in organized retail chains – all of them have these two things in common – a clear value to consumers and a strong promise around quality execution. Without these two things, it is very difficult to change customer’s behavior, especially when the customers already have a fairly decent alternative. eCommerce adoption is no different, and it has not yet hit the tipping point because of these very factors.
Broadly speaking, consumers still don’t see enough value in using this channel as an alternative to shopping in a physical store, and for the ones who do see a value, eCommerce industry as a whole has failed to “wow” them because of lapses in customer experience and execution. My belief is that the eCommerce adoption will continue to grow at this slow pace until more mature players enter the market or until some of the existing players significantly rethink their value proposition and operations. Some of the existing online retailers have already started thinking in this dimension, and I would bet that in the next few years the landscape will change.
The eCommerce industry will be led by a new breed of online players – those who consider their back end, fulfillment and CRM functions as strategic differentiators, those who can think beyond making quick money for the current year – but are focused on lifetime customer loyalty. Then it will be a different ball game, and the rules of that ball game will be decided by who matters the most –our customers.
Challenges in Disintermediation :: Because of the online stores, traditional wholesaler and retailer model is under threat. More so, companies like Reliance are facing lot of friction from locals (for their supermarkets)- Can’t the same happen with online stores too?
Actually, I don’t consider online as a threat to the traditional wholesaler and retailer model. If we look at the US market, online is a fairly mature channel – accounting for over 10% of retail industry revenues. However, this hasn’t impacted the traditional channel in any way. I would actually argue that online channel has in fact helped the traditional channel by offering tools and transparency in information that never existed before.
Several studies have been done in US which clearly indicate that retailers such as Walmart or Target that use online as a strategic part of their multi channel strategy are likely to have higher physical store sales than the ones who don’t. At Sears a large percent of sales in our physical stores were actually “influenced” by the online channel. The online channel helps consumers explore products in ways that never existed before. It lets consumers make more informed decisions – it lets consumers hear the voice and opinion of other consumers in ways that were not possible before.
If anything, the online channel helps consumers separate the wheat from the chaff and minimizes waste in the retail eco system. Even if the online channel cannibalized some sales from the physical channel, the impact to locals will almost be unnoticeable. The reason for that is that most online players operate at a national level. The impact to a corner grocery store because of a nationwide online retailer will be hardly noticeable.
eCommerce in India has lot of challenges to solve – for e.g. logistics, payment mechanism, double taxation etc. What’s your opinion?
I agree, a number of challenges need to be addressed for eCommerce to take off. First and foremost, the suppliers or vendors must improve their technology and fulfillment processes. Currently, a lot of customer issues occur because the fulfillment partner either shipped a wrong product or wasn’t able to track the shipping details. For customers to trust this channel, they must see consistency in execution. The critical step in making this happen is for the online retailers to tightly integrate their systems with the backend fulfillment vendors.
Secondly, the online retailers must start enforcing strong penalties on vendors who are failing on execution. Better margins at the expense of product quality or execution should not be an option. This will ensure there is better trust in eCommerce channel as a whole.
Thirdly, the government must do more to standardize policies related to online shopping. The octroi and rules related to shipping products across different states must be standardized. Additionaly, there should also be recourse available to customers who are victims of online fraud or bad trade practices that are polluting the online environment.
I can go on and on but I certainly don’t want to paint a gloom and doom scenario for online shopping and eCommerce in India. Online shopping has a great potential in India, especially when the real estate costs are sky rocketing. However, we have to win the customers and demonstrate that they can trust the online channel as much or more than the physical channel that they have been used to.
Every online store in India sells almost the same items and there is hardly any strong brand recall. Do you foresee vertical online stores as the way to go?
I wrote an article in my blog “where is the differentiation” that touches on this topic. Vertical online stores are certainly one way to differentiate, and this has already started to happen in certain categories such as Flowers, Shoes and Gadgets. However, since the overall eCommerce pie is still relatively small, retailers who are focusing on vertical categories, may have to wait for few years to achieve the scale they are hoping for. I do think, it is time to start thinking about differentiation around other dimensions such as quality of execution, customer service or user experience.
Future of m-commerce : India has more mobile users than Internet and m-commerce is being touted as the next big thing. What’s your take?
m-commerce has a lot of potential but it is not immune from the challenges that are impacting eCommerce. The core issue, as I mentioned earlier, is about the lack of confidence and trust in online shopping. This cannot be mitigated by porting the user experience to a mobile device. In the end, if the customers still have to deal with poor customer service or product issues, using a mobile device will not increase the adoption.
However, once those issues have been addressed, I do think mobile is the logical next step for commerce. There are issues that need to be considered – such as small form factor, lack of standards across mobile devices etc. However, these issues can easily be overcome, and in fact some of the mobile payment types and platforms have already been launched to overcome these kind of issues.
eCommerce growth will entail new business models – What’s your experience with the US market, in general? How diff are Indian consumers?
I absolutely agree – new business models will emerge in the near future that will help in taking eCommerce in India to the next level. If we look at the US market, the evolution of eCommerce happened in various phases – over time, the focus has shifted from a transactional driven model to a relationship driven model. More and more online businesses are recognizing the importance of customer relationships and the value repeat customers bring to the growth of the online business. These online retailers are willing to make short term sacrifices in their profitability as long as those actions will improve the likelihood of repeat purchase by their customers. Social shopping is also becoming very popular in US – there are several models where companies have successfully been able to monetize the power of the communities, resulting in higher number of transactions.
For the Indian market, the next phase of evolution will be around niche eCommerce sites, focused on different categories or customer segments. We will also start seeing a large number of aggregators that will offer comparison shopping and aggregated content. I do think social shopping is also a huge opportunity for the Indian market, but Indian consumers need significant incentives to participate in communities in a meaningful way. Therefore, online retailers who are able to come up with the right incentive structures for these communities can really thrive on the social shopping phenomenon.
The biggest difference I see between US and Indian customers is that the Indian customer’s shopping behavior is still very need driven. In US, a number of business models such as Woot.com have thrived because there is a large segment of customers who are impulse and deal driven. They may not have a need to buy that Garmin hand held navigation system – but just because it is cool, and is available for a 60% discount on Woot.com may be reason enough to purchase it! With rising income levels and a growing economy, this shift is also starting to happen in India.
Therefore, I do expect that the retailing in India will become highly promotional in future, with prices for products fluctuating much more frequently to attract those impulse buyers. This opens up a great opportunity for online price aggregators or comparison shopping engines!!
Recommended Read: eCommerce in India: Market Research