When this issue of Forbes India reaches you, Diwali will barely be a week away. But for millions of consumers across India, the celebrations began much earlier, over a month ago in fact, with the biggest deals, delicious bargains, competitive prices and the most convenient of all shopping—from home.
The autumn-winter festive period has seen major ecommerce industry players come forward and fire on all cylinders. Flipkart, Snapdeal, Jabong and more have saturated every media vehicle announcing too-good-to-be-true offers. Flipkart’s ‘Big Billion Day’ on October 6 was pitted against Snapdeal’s enthusiastic ‘Bachate Raho’ campaign and Amazon’s ‘Online Shopping Dhamaka’.
As Arvind Singhal, chairman of retail consulting firm Technopak Advisors, puts it, October will be the tipping point for online retail in India. “With the collective impact of promotion and advertising by all major players, the Indian e-tailing space will see a whole new wave of first-time shoppers coming online during the festive months.”
Yet, the youngest player on the block, Amazon India, has little to fear, says Amit Agarwal, vice-president and country manager for the global online marketplace. “We are extremely focussed on the customer and spend very little time paying attention to competitors. Our approach is to look at the three dimensions we believe in: How to expand selection, make that available for immediate shipment and how to widen our network and reach throughout the country,” says Agarwal.
In the 16 months that it has spent in the Indian market since its launch in June 2013, has Amazon readied itself for the onslaught of competition?
Absolutely, feels Agarwal. And he has good reason to be upbeat. In just over a year of its operations, Amazon India claims to have sold $1 billion worth of products. But that’s just the beginning. “We have reset our target much higher and are already on our way to figure out how we can get there. It’s been a massive momentum for us so far,” he says. (In March this year, Flipkart announced that goods worth over $1 billion had been sold through its online portal. Snapdeal also crossed the $1-billion mark in sales early this fiscal.)
“For a new player (Amazon) to enter the market and within a year-and-a-half, hit a billion in sales is big. The message is clear that it is not just here to stay, but also definitely looking at the number one position,” says Ashish Jhalani, founder, eTailing India, a consultancy firm.
The company made its intentions amply clear when Jeff Bezos, founder and CEO of Amazon.com, arrived in India last month. Bezos’s whirlwind trip included meetings with the heads of ministries and industry bodies to discuss the ecommerce environment in India and the roadmap ahead for Amazon in the country. Nothing, however, captured the public eye quite as much as Bezos on top of a truck with Agarwal, flashing a $2 billion cheque as large as the windshield and reaffirming the single largest investment by an individual company in the nascent $3.1 billion Indian ecommerce industry (according to a report by Hong Kong-based brokerage firm CLSA).
Amazon India’s advertising blitz comes at a time when the intensity of competition has peaked and a three-way tussle for the top slot has emerged over the last few months. A day before the company announced the $2 billion investment this July, India’s largest online retailer Flipkart said it had raised fresh capital of $1 billion. In a month’s time, Snapdeal roped in Ratan Tata, chairman emeritus of Tata Sons, as its investor for an undisclosed amount.
But experts feel Amazon’s strategy to go all-out in India is more proactive than reactive. “For Amazon, India is not a patchwork of strategy from any other country in the world. Its India strategy has been endorsed directly by the top management and Bezos with a $2 billion investment. It is not about reacting to competition; it is about saying that we take India as a good opportunity for ecommerce, and we have the right resources—whether it is people, or commitment from the headquarters, or financials—to move ahead,” says Singhal of Technopak.
PUSH FOR PROMOTIONS
According to industry sources, Amazon India has an advertising budget of Rs 150-200 crore for 2014, of which about 45 percent is pegged for spends on digital followed by TV (40 percent), print (10 percent), radio and outdoor (5 percent). Both Flipkart and Snapdeal lag in such spends, with an estimated advertising and promotions budget of Rs 100-120 crore and Rs 100-130 crore, respectively.
“Amazon India follows an advertising strategy which is typically seasonal and mostly during peak periods, including festivals, end of season sale and major national events. As a new entrant in the ecommerce space, Amazon is highly aggressive in terms of visibility and spending,” says an advertising professional.
Sources say Amazon India’s highest spend on TV thus far has been for the IPL’s associate sponsorship this year for approximately Rs 27 crore. Its other major TV sponsorships this year include MasterChef US and MasterChef Australia, Jhalak Dikhhla Jaa (season 7) and Kaun Banega Crorepati (season 8). Among its local competitors, Snapdeal is the most aggressive in terms of visibility. According to sources, Snapdeal spent Rs 35 crore to be the lead sponsor for Colors TV channel’s popular reality show Bigg Boss’s latest season. [Disclosure: Colors is part of Network18, which also publishes Forbes India.] But Agarwal knows that aggressive marketing comes to a nought if it isn’t backed by effective customer service. “Customers would come to your buffet, but if they don’t get great service and offerings, they would not come back again. Our focus is completely on customers, and we are using all the communication media to amplify our message and tell consumers that we have a great offering,” he says.
During the first week of the “Online Shopping Dhamaka”, which started in September, Agarwal claims the customer count jumped by two-and-a-half times. The number of products these customers were buying from deals and offers also rose three times when compared to the sales the previous week.
But Harminder Sahni, founder and managing director of Wazir Advisors, a retail consulting firm, feels Amazon India still has to learn a few lessons in winning the brand battle with advertising. The question, Sahni believes, that should be considered is not just the amplified message but also the message itself. While advertising has no doubt played a part in Amazon’s incremental sales since the start of this festive season, a sharper message may have yielded better dividends.
“Somewhere in its [Amazon] communication, it should bring forth the number of categories which are available on the website for people who are not regular shoppers on their site. It could be a big hook for new customers to come on board,” says Sahni, adding that classifieds websites quikr.com and olx.in “follow a clever advertising strategy with clear communication, giving consumers examples of all that can be sold or bought on their websites”.BACK-END SUPPORT
For Amazon, communication is only one of the weapons in its arsenal. The company is also focusing on ramping up its product offerings. Amazon India is planning to sell packaged foods and beverages on its website, the first among the major online marketplace players to enter the category in India. According to sources, it is set to launch its food and beverage (F&B) section by the end of October. However, its spokesperson refused to comment.
Recently, Coca Cola launched its low-calorie variant ‘Coca-Cola Zero’ exclusively on the Amazon.in platform for about two weeks, before its mass retailing. The move was hugely successful: The zero-sugar beverage sold 1 lakh cans in over 10 days of its launch on the website. Flipkart and Snapdeal have not yet ventured into the F&B space.
“Some of our biggest successes are our exclusive product launches. The Micromax Canvas A1 is the fastest-selling phone on our platform. We have sold 100,000 phones in two weeks. For the Xbox, another Amazon exclusive, we came up with the idea of midnight delivery on the release day. We delivered Xbox One to many customers in metro cities at 12.01 am,” says Agarwal.
All this has been made possible through the company’s significant investments in its back-end infrastructure, upgrading its delivery network, including own logistics and partners. With its seven ‘fulfilment centres’ across India, Amazon lures sellers by managing their entire purchase value chain, including warehousing, logistics, packaging and customer services based on a pay-as-you-go model.
Experts say that the online major’s current half a million square feet storage space and its plans to double its warehousing space by next year will be a booster dose to expand its product catalogue in India. “Multiple warehouses are one of its biggest advantages. Their process-driven facilities attract small retailers to sell on Amazon and reach out to a large customer base. While Flipkart is still trying to build its back-end model completely, Amazon has already been able to execute through its warehouses,” says Jhalani of eTailing India. The company has also maximised its reach across the country by tying up with the Indian postal service, gaining access to over 19,000 pin codes, including far-flung locations such as Belamu, a hamlet in Arunachal Pradesh. Amazon’s plans also include tapping the sizeable mobile application market. At present, over 35 percent of its site traffic comes from mobile devices, which is the fastest growth that the company has seen anywhere in the world. There’s scope for even greater growth given that mobile commerce contributes to approximately 50 percent of Flipkart’s sales, and Snapdeal hopes its mobile sales will go up to 75 percent in the future.THE CRITICAL CUSTOMER
For customers, it’s the best of times in ecommerce. With exclusives, deals, and now communication, the focus is on giving them the best. However, the euphoria shouldn’t drown the warning bells that are ringing loud for e-tailers. “A lot of work still needs to be done [across players] to ensure resellers provide the right service,” says Sahni of Wazir Advisors. Resellers are authorised, validated third-party sellers using the marketplace platform to sell their products and services.
A quick survey of the brands’ social media pages paints a mixed picture. While there is excited chatter and anticipation, there is also much dissent over misplaced deliveries, late arrivals, sudden cancellations and late refunds.
“With everyone adding categories, launching products and adding new resellers continuously, there are bound to be slips in service. It may be one in a thousand from a brand perspective, but from a customer point of view, he doesn’t care about the hit rate of the brand. His delivery hasn’t happened and that’s all that matters to him,” says Sahni.
Amazon, for one, seems to have taken cognisance of this. The company started with 100 sellers during its launch; today, it has about 12,000 registered sellers offering over 18 million products across 32 categories.
During his recent visit to India, Bezos talked about Amazon’s local innovation plans for the small and medium enterprises (SMEs) and developing programmes to eliminate logistics issues for small businesses. The SMB Accelerator is one such service that teaches SMEs with limited resources to digitise their product catalogue and ensure effective online sales.
The brand also offers self-service registration (SSR), a seller-specific innovation, which allows businesses of any size, location and product catalogue to begin sales on the platform. A “pay-as-you-go” platform, it provides small businesses with a wider reach without any product listing fees. “Going forward, we will continue to invest in areas like expanding categories, network, fulfilment centres (logistics) and self-service registrations to increase the number of sellers on our platform,” says Agarwal.
By all accounts, Amazon India seems poised to see exponential growth. But there isn’t a reason to celebrate just yet. Given the hyperactive ecommerce ecosystem and the fierce competition from players large and small, for its next billion in sales, the global behemoth may find the going tougher than its journey thus far.
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(This story appears in the 31 October, 2014 issue of Forbes India. To visit our Archives, click here.)