In recent years, fashion e-tailer Jabong has been diligently collecting data about consumers visiting its website. It is a common practice among marketplaces.
The data offers illuminating information about consumer habits: why do they come online for, what they browse, what they like, dislike and end up buying. Jabong has so far complied data from about 7.9 million shoppers who bought items on its website. One would think that is a goldmine of information, but Jabong has tended to pay scant attention. That changed about three months ago.
On April 1, the government ‘s Department of Industrial Policy and Promotion (DIPP) banned discounts by online marketplaces. Online platforms could no longer use cash to subsidise products or offer deep discounts. Suddenly, Jabong discovered that the data was going to be extremely useful. Digging into the data and putting to use algorithms, the company began to offer what people actually buy instead of carpet bombing them with an excess of items.
Sanjeev Mohanty, CEO, Jabong, cites the example of selling shorts in summer. “We will now focus on selling the top 25 options of shorts from top 30 brands which would have 750 options, instead of peppering the site with 100 options from top 300 brands and have consumers filter and hunt through 3,000-5,000 options of shorts. That’s how top department stores behave.”
Jabong has since reduced the number of brands available online to around 1,500 from 2,500. The number of genuine shoppers — who actually buy — has risen. Conversion rate, a measure of the number of people who buy something from every 100 visitors, has jumped from 1.7% to 2.12%.
“Carpet bombing is off,” says Mohanty. “All this intelligence built into the system is now being used to improve conversion rates, assortment and selection.” Jabong will now focus primarily on revenue and profitability. And it is not alone.
Time for Change
The centrepiece of ecommerce operations has long been deep discounts, but even before the DIPP order, these companies have been pressing ahead with new strategies to coax customers into buying from their websites.
“Discounts would have eventually come down, but the DIPP order has accelerated shift to better management. Companies are using the opportunity to build better, profitable marketplaces,” says Vijay Shekhar Sharma, founder, Paytm.
This was inevitable. Deep discounts were bleeding these companies and investors were clamouring for profits. Fortunately for ecommerce companies, many shoppers are not so adamant about discounts. Turns out many are shopaholics. A May 2016 report on digital retail by AT Kearney & Google noted that people won’t stop shopping if discounts were withdrawn. But the focus of ecommerce companies, the report elaborated, should be on product assortment, convenience of ordering and differentiation.
In foreign markets, this has been happening for some time. For example JD.com, one of China’s largest B2C etailers offers invitation only membership and premium services like delivery in three hours. Russian fashion e-tailer Lamoda trains delivery staff to advise on fashion and wait 15 minutes to allow buyers to try and return if they find the product unsatisfactory.
Ecommerce companies in India are trying to achieve a similar goal: push for smarter strategies in place of deep discounts and consequently increase repeat purchases and create more stickiness in visitors.
Amit Maheshwari, CEO, Exclusively.com, a fashion portal run by ecommerce company Snapdeal, says abnormal discounts are going away. “This is an opportunity to offer personalised services and use better analytics to understand what shoppers are looking for.”
Last week, Exclusively.com started a fashion e-magazine and fashion blog to “complete the ecosystem for shoppers” to ensure they don’t go elsewhere for the latest trends and end up buying on the e-store. Flipkart, meanwhile, is mulling pre-approved loans to help customers make purchases under a ‘buy-now-paylater’ scheme to prepare for the upcoming festive season.
Nitin Bawankule, industry director, Google India, says marketplaces will have to focus on value-added services. “They should customise products, send tailors to do the fitting and offer additional warranty to attract e-shoppers.” Ecommerce platforms need no telling. “Companies are moving from blind cash burn to improving yields, reducing expenses, more impactful marketing,” says Sandeep Aggarwal, founder, Shopclues.com.
The results are palpable. Companies that have made virtual size charts more accurate are seeing that return of goods has reduced. Marketing expenses are now performance oriented. Marketing spends as a percentage of GMV (Gross Merchandise Value, or total sales) has declined from 11-12% to around 8% in the last three months; companies are aiming to reduce that further to below 5%. “If I am running a campaign on social networks, it has to result in transactions, otherwise it’s discontinued,” says Aggarwal.
Adds Paytm’s Sharma, “Our (marketing) spend is around 7% and we plan to reduce it. The focus will be more on customers who are used to buying and how we can serve them better to ensure repeat purchases.”
Some companies are hoping customers will bear some of their burden. They are increasingly asking customers to pay for shipping or enter into a transaction with the logistics company. They are even charging for cash on delivery (CoD). Shopclues levies Rs 29 for CoD while Amazon has a convenience fee of `50 per order. Jabong’s CoD has dropped to 60% from 70% a year as frequent buyers became more comfortable about using credit cards for purchases only.
The larger goal, says Aggarwal of Shopclues, is to tread a path to profitability. “For every Rs 100 crore revenue the unit economics has to be better than the previous Rs 100 crore.” He expects warehouse efficiency to improve as well, with companies which have inventory led models (like Flipkart, Amazon) using warehouse shelves for products that move fast.
The ATKearney report says the number of online shoppers will increase to 175 million by 2020 from about 50 million now and about one-third of them will contribute to 68% of the total spending. By then, lifestyle will overtake consumer electronics, which constitutes about 65% of the GMV at present. The share of CoD will reduce from 57% in 2015 to 45% by 2020, with lower income buyers and users without plastic money opting for CoD, says the report.
The primary value proposition of ecommerce, the ability to by anywhere, anytime still prompts most users to come online. So e-tailers are trying to make their platforms more appealing to attract old and new buyers.
For example, the Alibaba-funded Paytm has a four-step strategy. First, create 1,000 virtual brand stores. Buyers looking for Raymond BSE 0.81% products can go to its virtual store and shop. Second, create ‘Bazaar’, a flea market for non-branded products that cost between Rs 50 and Rs 800 each. Sudhanshu Gupta, vice-president, Paytm, says the company ships 1 lakh such items daily. Third, local commerce, helping people buy white goods online. Fourth, enable users to buy goods from overseas via its Alibaba partnership. “We believe trust, convenience, assortment matters and that’s our focus,” says Gupta.
Jayant Sood, chief customer experience officer, Snapdeal, believes consumers’ perception of ‘value’ has evolved beyond discounts to include choice, convenience and experience. Snapdeal is eyeing 20 million daily transacting users by 2020, up from around 1 million at present. Sharma of Paytm sees a silver lining in discounts being aligned to offline stores. “It checks fake buyers and round tripping (sellers themselves bought their own goods online at deep discounts and resold offline). Genuine buyer and genuine e-commerce will emerge out of this upheaval.”