As physical and digital touchpoints converge, the retail landscape is seeing the emergence of customers who are highly aware, willing to experiment and prefer a direct engagement with brands
Image: Manjunath Kiran/ AFP
The ecommerce industry in India has seen rapid growth, fuelled by a high rate of digital adoption, aspirational consumers, and maturity of the auxiliary ecosystem such as logistics, packaging, payments etc, leading to faster penetration beyond the metros to Tier II and III towns.
The Covid-19 pandemic has accelerated these trends, with a significant proportion of consumers shifting spends to the online channel and sticking to this decision, even as physical stores opened up. This is reflected in Deloitte’s State of the Consumer Tracker for November 2021 with online emerging as the intended purchase channel for 50 percent of Indian consumers in key categories such as electronics, personal care and apparel.
In response to these paradigm shifts in consumer behaviour, we have seen companies restructure and build a wide range of new capabilities. It has led to the emergence of new digital business models (remote sales, quick commerce etc) as well as a swift scale-up of existing models (omnichannel, D2C etc). Organisations are increasingly realising that ecommerce
offers benefits beyond the channel and also tremendous potential to use data from a front-end and organisation-facing standpoint to enhance their revenues and create future-ready operating models As we crystal-gaze into the future, there are three clear themes emerging which will define the way business is conducted in the coming years.
The rise of Direct to Consumer (D2C) models: As physical and digital touchpoints converge, a new set of ‘non-linear’ consumers are emerging who are highly aware, willing to experiment and prefer direct engagement with brands. This has led to an explosion of D2C models that allow companies to directly own consumers and gain access to high quality data which can be used to create highly personalised and tailored offerings. On one hand, digital native companies have flourished by adopting an online-first approach and creating multiple revenue streams such as subscriptions, memberships etc. Further, as the partnerships ecosystem has matured, the digital natives have focussed on their core competencies of consumer acquisition and retentions, leaving other operational activities such as technology, logistics
and payments to a wider set of specialist companies who work across industries. There are also established examples of such companies then scaling up by creating offline touchpoints which allow customers to touch and feel the products, enriching the existing customer data set and helping them expand to newer segments.
On the other hand, traditional companies are building online channels and connecting their existing brick-and-mortar assets such as exclusive brand outlets. This allows them to sweat their existing assets better by adopting phygital business models. Many are adopting an acquisition route to gain faster access to this space.
Regardless of the approach, to succeed in this new arena, companies will need to focus on unit economics while ensuring they provide an elevated customer experience. A key consideration for brands is the increasing competition due to low-cost barriers. Hence, it’s imperative for each brand to innovate to acquire and engage a large number of active users by offering convenience (for example, app-in-app integrations), differentiated products (private labels) etc.
Disintermediation through Digitalisation: Over the past few years, emerging technologies such as cloud, artificial intelligence
, machine learning, blockchain enabled by innovations
from India’s robust startup ecosystem have redefined the contours of business channels across many consumer-facing sectors. Organisations are increasingly turning to these technologies to create future-ready businesses by leveraging digital capabilities and creating integrated processes across the value chain. As we move into the era of Web 3.0, accelerating decentralisation will lead to new ‘headless’ ways of doing business and lead to organisations shifting away from traditional business channels. In addition, their rapid adoption across key ecommerce building blocks such as supply chain
, warehousing and payments will lower entry barriers and create a more vibrant ecosystem. This is already seen to play out in sectors such as finance, retail
and health with shift towards asset-light cloud-based models emerging as key areas of differentiation. Adoption of these initiatives can result in increased margins, enhanced consumer reach and market share in the long term. Companies are going beyond using the online channel as a medium to facilitate transactions; they are adopting a platform model to provide a holistic mechanism for all stakeholders to create value for each other
Adoption of Platform Approach: Organisations are increasingly going beyond using the online channel as a medium to simply facilitate transactions. Instead, they are adopting a ‘platform model’ which unlike the traditional value chain, provides a holistic mechanism for all stakeholders of an organisation to create value for each other in a transparent and resource-efficient manner. It enables brands to take robust decisions, sustain outcomes, be agile and minimise risks. To successfully implement a platform business, brands need to focus on a digital-first mindset, service efficiency and effective portfolio management. Many are increasingly opting to be an ecosystem driver where they provide a branded platform to connect fragmented and unorganised sectors, ensure great customer experience and gather customer data from all interactions which can be used for insight generation. Further, they can charge both customers and suppliers for providing value-added services. Another approach is to play the role of an aggregator which acquires brands, builds standardisation to reduce costs and cross-pollinates learnings to continuously learn and innovate.
As these themes play out, they will have several implications for organisations. Consumers will demand best-in-class experience centred on transparency, two-way communication and sustainable practices. Organisations will therefore need to accelerate adoption of digital and enable agile, nimble and purposeful ways of working to create deeper connections across communities. These are surely exciting times for the ecommerce industry and as we venture into the New Year, it is time to buckle up and enjoy the ride. Ramanathan is partner and Bagri is associate director, Deloitte India
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(This story appears in the 14 January, 2022 issue of Forbes India. To visit our Archives, click here.)