Why Is Ecommerce So Successful In India?

Why Is Ecommerce So Successful In India?

By Mainak Biswas October 26, 2015 - 20,545 views

E-commerce has become the most exciting sector in India today. With a growing number of aspiring rural and urban internet-connected customers, there is a tremendous scope of online selling. There is a huge one-time customer base in India. The concept of e-commerce is not new to India. Domestic players like Rediff Shopping, Yahoo! Shopping, Indiatimes Shopping, Sify Shopping and HomeShop18 have been in the market since early 2000s; though they figure nowhere close to the top 10 players in India today.

The chief reason is their failure to sense the market demand, limited product catalogue and skewed focus towards sellers rather than consumers. Moreover, the consumer sentiment was also not so strong at that time due to lack of trustworthiness for buying online.

Winds of change

However, over a last couple of years, the ecommerce market has drastically evolved witnessing an influx of start-up companies. Currently, Flipkart, Amazon and Snapdeal are the market leaders. Flipkart grew at the rate of 476% in terms of goods sold in the year 2012-2013 which clearly is a sign of aggressiveness in the market.

But with growing internet connectivity in tier-II, tier-III and rural areas, the number of internet users is rising exponentially. According to an estimation by Gartner, India’s ecommerce market is expected to reach $6 billion by the end of 2015. According to Goldman Sachs, India’s ecommerce market will account for 2.5% of India’s GDP by 2030 and expected to touch $300 billion. Global players like Amazon and Alibaba have entered the market to reap the advantage of this huge market potential.

What makes India an attractive destination for operating ecommerce shops? The following article will profoundly analyze the story of ecommerce success in India.

1. Changing consumer demographics

According to a report released by UN in November 2014, with 356 million 10-24 year-olds, India has the world’s largest youth population despite having a smaller population than China. India is prepared to include 300 million new online shoppers in the next 15 years. With increasing online mobile penetration, India is hooked to have the second-largest digital population in the world by 2030 followed by China.

Changing consumer demographics with high disposable income both in urban and rural areas has become the driving force in ecommerce growth. It has led to bigger online order sizes and changes in consumer lifestyle. Besides that, consumer purchase behavior has evolved significantly especially in tier-II and tier-III cities. The idea of sitting at home, comparing prices and product features has excited the Indian users by enhancing their shopping experience. After travel; apparel and electronics remain the most popular categories people prefer to buy online.

2. Telecom infrastructure

The internet penetration and the number of broadband users are increasing rapidly. According to Google India, Indian internet user base is likely to touch 500 million by 2018-19 which will stoke Indian economy beyond measure. The number of internet users surpassed 300 million in December 2013. India Inc. has pumped a lot of money into spectrums and building telecom infrastructure to provide 3G internet to 25-30% of the population. Moreover, 4G internet has already become a reality in India with the introduction of Airtel 4G services in Vishakhapatnam. It will give a much desired thrust across India once services are initiated in different cities.

3. Proliferation of internet-enabled devices

Increasing adoption of devices like smartphones, tablets and laptops has contributed significantly towards ecommerce growth. Moreover, 3G-enabled smartphones are available in the market at highly affordable rates. According to research firm Gfk, the total mobile phone sales in India was recorded at 200 million units in 2014 and smartphones comprised more than 25% share at 53 million units. Globally, India is seen as the fastest growing smartphone market especially due to falling prices of smartphones and impetus towards smartphones from feature phones.

4. Exponential growth in mobile application market

With increasing mobile internet connectivity and growth of smartphone users in India, m-commerce is a major contributing factor towards the success of the sector. Remarkable growth witnessed by online mobile medium is slated to overtake ecommerce in few years. The increase in mobile application download to access e-retailers is solid testimony. According to a KPMG report, it is estimated that mobile application download would grow six-fold by the end of 2015 touching 9 billion apps. Moreover, India has been the fastest growing mobile app market consecutively in 2013 and 2014. The growth in mobile app market is so high that many ecommerce companies are considering discontinuing their full-fledged websites to focus solely upon mobile platform.

5. Evolving payment landscape

Indian economy largely runs on liquid cash basis. Most Indians do not trust to make payments online because online transaction is a relatively new concept here. Also, payment gateways have also not been very effective due to high transaction failure rate. This made it imperative for ecommerce companies to introduce cash-on-delivery. Around 60% of total trade happens in cash-on-delivery mode only, according to Goldman Sachs report. Apart from that, ecommerce companies and banks are devising new methods of making online payments. Launch of digital wallets like Mobikwik, Pockets, Airtel money has instilled a level of confidence among consumers and is finding rapid acceptance.

6. Fierce competition

The competition in ecommerce has become too intense with leading players adopting aggressive selling strategies. Most ecommerce companies are capable of spending big. The customer acquisition cost is running high. Companies are playing on volume trade and are incurring operational losses. They are offering deep discounts far below the MRP making it a lucrative offer for consumers. Free shipping further adorns the offer. All this is being done to acquire the majority market share.

7. Cultural factors

India, the leading emerging market in the world, has a population desperately looking for access to consumer goods at competitive prices. The ecommerce in India is largely classified into travel, e-retail and online classified. The travel trade is composed of flight, rail, bus and hotel bookings while the online classified is broadly subdivided into job, real estate and matrimonial services. Currently, travel-related purchase dominates the e-commerce market in India accounting for 70% of the market, according to a study by PricewaterhouseCoopers. On the other hand, e-retail has been witnessing a double digit growth and the fastest growing segment is technology and accessories.

Huge consumer demand

Online shopping during festivals
Indian festivals especially during the months of September, October and November behold a lot of pomp and show. There is a tremendous demand for new products in the market. Instead of visiting brick-and-mortar stores in congested markets amid traffic, consumers find it much easier to order online.

Shopping festivals organized by ecommerce players

The third edition of Great Online Shopping Festival organized by Google in December 2014 received massive response from Indian consumers. Realty firm Tata Housing got 10,000 booking for flats within the first day where consumers are supposed to pay Rs 25,000 to make a booking. Google tied-up with 450 merchants that offered special discounts on merchandise. A number of ecommerce portals such as Amazon India, Flipkart, AskMeBazaar, HomeShop18, PayTM, Ibibo, Indiatimes shopping and Makemytrip were part of the festival.

Huge network of vendors

India has a huge network of vendors and suppliers who are ready to collaborate with ecommerce companies to sell their goods to the vast audience. Small and medium enterprises often find it difficult to reach consumers owing to infrastructure and marketing constraints. Ecommerce has given them a vent to explore the market and expand their reach.

Huge investment

Venture capitalists eye ecommerce sector as a strong return on investment medium. The year 2014 saw more than $6 billion invested in ecommerce companies and a lot more is queued up to be invested. This clearly shows a potent eco-system in place.

Future of ecommerce companies in India

India has been primarily operating on marketplace model. Despite all the favorable factors, the ecommerce game has not been easy for many start-ups. Many investors and startups have been disillusioned owing to the challenges faced by the industry. The most common challenges faced by ecommerce companies in India include market entry barriers due to dominion of large players who play on volume to strengthen their market share.

Indian government has still not taken a clear stand on taxation policy and there are many loopholes in the existing taxation policy as far as ecommerce ventures are concerned. Introduction of GST (Goods and Services Tax) will reduce taxation worries of both domestic and global companies and inter-state operations are likely to get streamlined with that. Easing of FDI norms in multi brand retail will invite more global investors.

Apart from that there are internet connectivity challenges, language barriers and logistics challenges which are gradually being resolved. If all these challenges are worked upon consistently, India will soon turn out to be topmost destination for conducting ecommerce business.

Understand why Ecommerce is so successful in India
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Understand why Ecommerce is so successful in India
Explore the factors contributing to the remarkable success of e-commerce in India and the dynamics behind its widespread adoption.
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Indus Net Technologies (INT.)
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