Insights: E-commerce profitability through Customer-centric Business Integration

While tracking same-customer revenue growth and category history, analyze margin trends. Is this customer ordering higher margin products over time? Is the revenue from this customer going up, but margins are going down? Is that because of category shift or is it because she prefers lower priced products in the same category over time?

One of the most discussed topics among India’s e-commerce CTOs is scaling technology to meet drastically growing business needs. A simple search on reveals many well-written articles on the subject. That e-commerce is experiencing explosive growth in India, is evident from both analyst reports and the continuing news cycles on series B or C funding being pumped into the industry by investors. Latest research from Forrester1 pegs current Indian e-commerce market size at $1.6 billion, growing 57% annually to reach $8.8 billion by 2016. This is despite the low 10.2% internet penetration reported by IWS2, which itself is growing annually at 31%. This suggests that the economy is adopting online commerce at a hungry rate and considering the size of our population, we are clearly poised to be big enough to matter more than the developed world in the very near future.

Based on my own experience with online shopping in the last few years and discussions with business leaders, I’m able to relate to the early dot com era of the last decade when large global enterprises were surprised by the tremendous growth in adoption of web based commerce by both consumers as well as their employees. This led to a super-fast technology upgrade cycle that lasted a couple of years, but created business integration issues that are still persisting in many cases.

To illustrate, consider a large Oil & Gas major which implemented a massive e-procurement solution in the 2000-01 timeframe that spanned 90 countries, 400+ business units and over 100,000 employees. I was one of the architects responsible for delivering an architecture that enabled this solution with as low complexity as possible and easy replication across countries and work cultures. While the project was highly successful, what we could not fathom at that time were the challenges that persisted for many years with respect to business units not being able to perform their functions adequately due to lack of integration in business processes. For example, a geologist in one of the exploration labs tries to order a chemical through the e-procurement site. This chemical is sourced from 3 specialized suppliers across various geographies with the lowest delivery time being 2 weeks. Inventories are only refreshed every month on the site for this product, not in real-time. The site goes ahead and accepts the order based on past inventory and pricing info but the supplier is unable to deliver due to this time-lag mismatch. The scientist loses 2 weeks before he gets to know the chemical will not be shipped. This would not have happened if the earlier manual process was followed as the scientist would have called to confirm availability before placing the order. There were many variations of this scenario which occurred over a period of time, impacting user satisfaction and breeding discontent against this change towards e-enablement within the enterprise.

Very similar scenarios are playing out in today’s e-commerce boom in the Indian context. A couple of months ago, I ordered 2 memory cards of different brands from a well-known e-commerce site (you can probably insert your favorite e-commerce store’s name here). While one of the cards was delivered on the promised delivery date, the shipment for the other one was lost in the system for over a month. After many unpleasant calls with customer service, I learnt and inferred the following:

  • Customer service call center was brought in-house (from an outsourced one) a few months ago due to customer dissatisfaction issues. The in-house call center still did not have access to complete information about orders, shipment or inventory. Most call center reps were reading pre-defined scripts and not providing any clear timeline or details about the reasons for the problem, just like the outsourced call center, leading to major customer dissatisfaction.
  • Not all inventory was maintained in real time and due to the small size of most suppliers, they were neither willing nor able to afford complex technical inventory/shipping systems.
  • Integration across business functions was not a priority yet as business was still good and orders were rolling in. The priority order for resolution of business issues was of course: (1) Revenue, (2) technology and (3) hiring.
  • Customer satisfaction measurements were done through surveys at the end of the customer service call and call center reps had good control over who to survey.
  • While there was a large analytics team in place, any measurement of customer profitability was not put to actual use by delivering a better experience to the more profitable customers. The fact that I had paid in advance online through credit card did not impact customer service behavior at all.
  • Customer retention was driven mostly through 2 actions:

i. Regular spam email on new product availability (probably customized based on customers earlier orders and browsing history)
ii. Cash discount coupons

As the story in the Indian e-commerce landscape plays out and consolidation ensues, the following trends are emerging which will probably separate the survivors from the herd:

1. What percentage of your customers are loyal and coming back for more?

2. How are you acquiring new customers – through discount coupon marketing or word of mouth?

3. And most importantly, how profitable will you be and how soon?

Massive consolidation is evident in the e-commerce landscape in the next 2 years and one of the key differentiators will be customer loyalty and profitability. To address the above 3 issues, I suggest moving business integration to the top of your priority list (yes, above revenue!), once you hit a decent revenue threshold. A good rule of thumb for this milestone could be Series B funding. That is the time when your business is large enough to derive maximum value from this exercise, but small enough to easily absorb the changes in culture and technology required. The following tasks offer an organized approach to achieving this:

1. Focus your analytics on customer profitability

You must already be sifting through loads of customer data to identify customer browsing needs, product volumes and category business cycles. I suggest you shift focus from revenue to profit when analyzing customer data. For example:

– If cash-on-delivery costs more, identify which customers are comfortable paying in advance online through credit cards or other means. If a customer has moved back from paying advance to COD, find out why?

– While tracking same-customer revenue growth and category history, analyze margin trends. Is this customer ordering higher margin products over time? Is the revenue from this customer going up, but margins are going down? Is that because of category shift or is it because she prefers lower priced products in the same category over time?

– Is the customer brand conscious enough to pay more for a commodity product (say computer consumables)?

2. Treat more profitable customers with more respect

This is obvious, but hard to execute. Typically, this can be delivered by selectively reducing call center wait times, offering faster shipping or better courier option, prioritizing available inventory for premium customers etc. This requires changes to existing business processes, including:

– Categorizing customers (and not just products)

– Integrating customer categories into various systems such as inventory, shipping and order tracking

– Training frontline staff to deliver a better experience to premium customers

3. Integrate inventory from all suppliers into one view

This is easier with larger suppliers – use web services for real-time inventory updates to your systems. For smaller suppliers, offering a web based interface or standard spreadsheet format is crucial, so data can be updated automatically as frequently as possible. A cloud based inventory management system may be more efficient for delivering this.

4. Keep courier selection decision in-house

While courier selection may have many limitations due to supplier preference, inventory location etc, maintaining good courier analytics and integrating the selection decision into the supply chain can be as beneficial as having a captive delivery workforce.

5. Give broad access to customer service frontline staff

Nothing is more frustrating than talking to a customer service rep who has no clue. Ideally, they should be able to trace an order from placement to delivery. To so this, they need access to the following:

i. Item inventory in warehouse or with supplier (and correct lead times)

ii. Shipment (courier selection)

iii. Courier tracking system

iv. Empowerment to take refund/replace decisions for at least premium category customers

6. Track impact of business integration changes

Different integration points will have different impact on different organizations. To truly understand the impact and deliver a better customer experience over time, an iterative process is a must. A best practice in this area is to code the ROI analytics into the integration implementation itself. Start with 2 or 3 integration points for the first phase and build the technology and culture from there.

Most e-commerce players understand the need to differentiate through better customer experience, but determining when this need takes priority over other short term pressing business issues and how to actually go about delivering it is not an exact science. Hopefully the framework described above can help growing online businesses assess their situation better and create a roadmap for better customer service and long term profitability.

What are your thoughts?


1. Asia Pacific Online Retail Forecast: 2011 To 2016, Forrester, April 2012

2. India Internet Usage Statistics and Telecommunications Market Report, IWS, March 2012


[Guest article contributed by Vikram Bhatia. Vikram heads the Windows Azure cloud platform business for Microsoft in India. In the past, he has worked for organizations like IBM, Sun Microsystems and Schlumberger in various business and technical roles. Vikram is a graduate from IIT Kanpur and holds a business degree from the Indian School of Business, Hyderabad. He can be reached via twitter.].

Recommended Read: How to: Build a Large and Scalable ECommerce Platform | The Missing Piece Among Indian Ecommerce Players : C.R.M.

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