Sachin Singhal reveals strategies to help retailers make the most of their online space When it comes to implementing a business idea in India, the retail business is the only format considered. In the past, visionaries focused on virtually anything that could be transformed into an earning opportunity. The recent trend towards e-commerce has retailers wondering whether or not they should embark upon this new format. Retail giants like Reliance and Future Group, among others, have already realised the potential and are making aggressive use of the online format as well. Everyone is inquisitive about e-commerce as a business model, its feasibility, profitability, and roadblocks on the path to success. In contrast to the mature e-commerce market in the US, e-commerce in India is still at a nascent stage, but has tremendous potential.  Due to its immense potential, everyone is trying to be a part of this fast-growing industry. E-commerce has numerous advantages over physical retail stores. A sound business idea which can entice the target audience is good enough to float a business on the internet. E-commerce is different from the traditional 'brick and mortar' companies as there is no entry barrier. Moreover, it is less capital-intensive, involves negligible infrastructural cost and provides faster ways to reach the target audience. E-commerce has a wide spectrum for internet users and eliminates any geographical barriers. It is available 24x7, helps in price/product comparison and even provides product delivery directly to the doorstep of the consumer. Good past, better future Recent figures reveal that there has been tremendous growth in the Indian e-commerce market. As opposed to a revenue generation of less than $0.3 billion in 2005, in the financial year 2010-11, the Indian e-commerce market is looking at close to $2 billion. Online travel booking websites dominate the market, with more than 50 per cent of market share. For example, in 2007, Makemytrip.com was the leader in the travel category, with a turnover of over Rs 1,000 crore. However, players like Yatra, Cleartrip, Ezeego and others also contributed significantly to this segment. With a turnover of Rs 1,105 crore in 2007, electronics and gadgets formed the largest non-travel category for e-commerce. Indiatimes, homeshop18, Indiaplaza and Cafegadgets are the key players in the Indian e-commerce sector. The future of e-retailing holds immense promise, as is evident in the CLSA Internet report 2007, which predicted that the country may breach the $5 billion barrier by 2010, with a year on year growth of over 60 per cent.
The E-commerce model E-commerce can be set up with any well-structured business idea. Each business idea has a revenue model attached to it. Business ideas can be broadly categorised under any of the four revenue models'Storefront, Ad Sales, Subscription/ Commission based and Hybrid.
 The Storefront model is the most prevalent revenue model. It offers products for sale through its ecatalogue, backed by electronic payments through credit cards, debit cards or through other means of payment. Products on offer can range from laptops and chocolate boxes to airline tickets and even automobiles. The margin on sales contributes primarily towards raising the bottom-line. Ad Sales, another type of revenue model, has been gaining immense popularity of late. Internet companies monetise through heavy traffic on their website. They place the advertiserís banner ads on their site, send promotional emailers to the customers in their databases, and run sponsorship events. Ad Sales is the primary source of income for most social networking websites. Internet advertising has grown considerably since the concept initially came into being. Its effectiveness has prompted many business houses to advertise on these networks and consequently attract consumersí attention. The Subscription/Commissionóbased revenue model caters to sites targeting a niche audience with specific needs. A fixed subscription is charged from the user of the services on a periodic basis. However, this kind of business model is yet to materialise in the Indian ecommerce space. The Hybrid model can be a combination of any of the aforementioned models or may be the introduction of whole new model altogether. As a single revenue model is never sufficient for the ecommerce business, most internet companies are moving towards hybrid models. Tracking success Many questions have been raised about the profitability scenario in the e-commerce space. Despite experiencing exponential growth in this vertical, most ventures are yet to break even. A number of internet companies gradually fade into oblivion due to a host of reasons such as lack of funds, the inability to attract the target segment, inadequate human resources and the inability to meet contingencies, among others. Indulging in the e-commerce format calls for immense patience from the retailer, as attaining the desired awareness among the masses is a time-consuming process. After floating any business on the online platform, one cannot expect to break even in a matter of a few months. It takes a minimum of three to five years for any business model to evolve completely and realise its full potential.
There are 55 million internet users in India, All these internet users could be the potential customers for any business. One has to find the right medium to address them. Footfalls on the website are the real bottom-line for any internet company. Websites with high traffic inflows have a greater probability of converting a visitor into a customer. Websites can attract potential customers through cost-effective online campaigns. A buzz is created around the website by word of mouth (also known as social media marketing), online ad campaigns like cost per click, cost per action or cost per lead, affiliate programmes, loyalty schemes, search engine optimisation, etc. Offline mediums such as print and TV commercials provide alternate means, but involve exorbitant costs. The average cost of acquiring a customer (also termed as cost of acquisition) can be easily determined in the case of online ad campaigns, whereas this aspect is difficult to track for print, TV commercials or any physical branding medium. A 1-2 per cent click-through ratio (CTR), the number of clicks by the number of ad impressions) is considered to be a healthy figure. In the long run, all the fixed costs and other infrastructural costs can be met if a business is able to break even with its operational cost. Operational costs mainly include human resource costs, the cost of goods or services sold, and cost of acquisition (marketing cost) .The average cost of acquiring a customer shouldn't be greater than the actual margin earned from that customer. Businesses need to adopt a balanced approach while forecasting the marketing budget, as internet advertising includes numerous overheads. One has to adopt the 'aggression with precaution' strategy. Wise implementation Running a profitable e-commerce business is not an impossible task. Before embarking on any online business, every company should be clear about its vision, mission and values. Online retail success depends on how well any business recognises the needs of the audience and adequately fulfills these. The best way to judge any business idea is to step into the shoes of potential customers. By adopting an unbiased approach, every retailer who is taking the online route should rate his business based on products, service or price. Each retailer should ponder a few questions:
Why has he chosen the particular website? How different is his online business from his competitorsí? What is the unique selling proposition of this business? Has he adopted any out-of-box idea that would grab the attention of the online customers?  All the above questions will help the retailer to successfully gauge his business decisions. One should be prepared to meet any contingency and should be flexible enough to adapt to the changing times. The high excitement levels in new businesses could only be catastrophic. Most companies end up spending millions of rupees with the aim of reaching potential customers in a flash, without foreseeing the repercussions on the balance sheet. Unwarranted expenditure would only mean a slow death of the online venture. Maintaining a focus on strategic tie-ups will provide brand visibility and footfalls on the website without unnecessary expenditure. Indulging in promotions for barter will help in cutting down the marketing expenditure sizeably. In the long run, the direct traffic and traffic from referring sites should constitute the major chunk of the pie. Google Adwords and other PPC campaigns share should not be more than 15ñ20 per cent. Investing in human resources that add some kind of value to the online business would be a profitable decision for the retailer. Businesses with sufficient capital can adopt the 'horses for courses' strategy while hiring resources. On the other hand, start-ups can invest in self-motivated people who have the ability to play multiple roles at different times. In the current scenario, it is not possible to rely on pure internet revenue in India as the market is still in a nascent phase. Retailers have to take alternate steps to keep up with the current online pace and generate profits from the online business model. Diversification in sales channels such as corporate sales and print media sales can boost revenue to a considerable extent. To achieve this, businesses need to invest appropriately and wisely in human resources, as such investments are directly proportional to the sales generated. Such initiatives will eventually change the dynamics of online businesses and will create significant new opportunities to boost the bottom-line. The author is Head - Marketing & Strategic Alliances, Cafegadgets.in |
