Online shopping in small town India: Will it be a feasible model?
On behalf of : Manideepa Talukdar
India is the fastest growing e-commerce market in Asia according to a study conducted by Forrester Research in 2012 for ASSOCHAM's 2nd National Conference on e-Commerce 2012. In 2013 the Indian e-commerce market grew by a mind boggling 88% to $16billion as per a survey conducted by the industry body ASSOCHAM. In the early days Indian e-commerce market was being led by Tier I cities but the trend has moved on to smaller towns. For instance online shopping website Jabong.com derives 60% of its revenues from smaller towns.
Online retailers face several challenges while servicing small town customers:
a) The risky Cash on Delivery(CoD) is a preferred mode of
b) High number of returned goods
c) Unreliable internet payment gateways
But the biggest problem faced by online retailers while servicing small towns is Logistics.
Let's look at a few options retailers have to overcome these challenges:
a) In-house delivery options
b) Online marketplace
c) Logistic solutions partners
d) Franchisee based model
Certain big retailers like Flipkart.com, Zovi.com are already using their in-house delivery model. But many times the in-house logistic divisions cater to only a few cities as large volumes are not seen in small towns. To drive volumes bigger retailers can offer delivery solutions to smaller players who can take advantage of a bigger player's network and expertise while the bigger player can optimize costs through volumes achieved.
The second option of online marketplace is where individuals and companies can list their offerings using one platform. They can then use the online marketplace's shipping and warehousing facilities. Amazon.in and Ebay.in offer such facilities to users. Even large online retail players in India like Flipkart.com and Snapdeal.com have started offering these facilities. Other well-known online market places in India are shopclues.com and craftsvilla.com.
The third option of logistics solution partners is a new business opportunity for traditional logistics solution providers. Logistics partners cannot just deliver purchased items to shoppers but also handle returns as well as handle cash for the COD option. DTDC has recently launched DotZot, a company which focuses on providing end-to-end logistics and warehousing services to e-commerce players. The other players in this space are Delhivery.com and Chhotu.in.
The fourth option is the franchisee based model. Big Bazaar has launched a new model for e-commerce called Big Bazaar direct in the Vidarbha district of Maharashtra, and will expand to the Northeast and Gujarat soon. In this model franchises personally visit customers and take product orders and place the same online through tablet computers.
Online shopping portal Edabba has set up Trust Points(TP) across the country which are managed by small shop owners who own computers. Shoppers who do not have access to the internet or would not want to carry out online transactions can visit these TPs to shop as well as collect their goods. This is an innovative solution which can drive down logistic costs in remote areas as all customers in a certain area can have their goods delivered in one place. In addition to this such a model can also provide home based employment to net-literate citizens who want set up outlets exclusively for franchisee related work. Such franchisee outlets can also provide a solution for 'feel factor' problem seen online retailing. Franchisee stores can allow customers to 'feel' the demo piece of the product and then order it online thus minimizing returns. Overall, it's a win-win situation for both the retailer as well the customer. The retailer will have to account for the service charges that it has to pay to the franchisees. But the service charges can be worked out to be lower than carrying costs of inventory to service small town customer across a vast country like India.
Online retail is expected to grow to $56 billion by 2023 according to ASSOCHAM. Small towns will continue to drive growths in a big way with more and more increased internet penetration. Online retailers who are able to provide innovative solutions to buyers from small towns will in the long run see a large growth in their market share.