e-tailing - Benefits, problems and the future


By:

Raghavendra R. Kulkarni
Faculty of Marketing
PES Institute Of Management
100 ft Ring Road, BSK III Stage, Bangalore-85
E-mail:
kulkirr@yahoo.co.in
 


e-tailing, or e-commerce can be described as transactions that are conducted over an electronic network, where the buyer and merchant are not at the same physical location, for example plastic card transactions via the internet.

According to a recent study:

  • Presently there are 4 million Internet users in India and the number is growing.
  • Computer Hardware, cinema, Books, Music cassettes /CDs, travel tickets and gifts are sold through the net in a big way.

POPULARITY

Reasons for e-tailing becoming a hot opening can be attributed to many factors viz.

  • No real estate costs
    e-tailers do not have to maintain expensive showrooms or warehouses in prime locations, they operate through their web sites and thus save drastically on the real estate costs. The real estate costs in the metropolitan cities are sky high. Besides this, maintenance costs of a virtual store vis--vis a physical store is much less.
     
  • Easy and comfortably
    Easy and comfortably -obtained info is another advantages that shopping on the Net offers. On the Internet, product information is just a few clicks away, all accessed in the comfort of a home. Traditional retailing stands out in stark contrast: the consumer searches frantically, runs up and down, grills a poorly trained store assistant who is unable to help him out. In the bargain, valuable time is lost. Simply put, shopping on the Internet for, say 15 minutes could save a two-hour trip to the mall. Consumers prefer to save this time so that they can devote more time for their professional and domestic priorities.
     
  • Better interaction with the customers
    The greatest benefits of online commerce is its ability to establish interaction en-masse. Interaction refers to the ability of reaching customers on an individual basis and react appropriately to responses of individual customers. Interaction is a vital tool for mass customization. Examples are many and include online marketing of flowers, software books and education. This has also led to greater satisfaction among the online buyers. According to a research agency, 82% of the online buyers have been found to be satisfied with their purchases.
     
  • Mass Media
    A supermarket has limited area of operation. It caters to customers of a city (and/or its suburbs), but a web site can be accessed from any part of the country or for that matter from any part of the world, thus increasing the potential customer base.

The hurdles

Most of the e-tailing ventures have not been as profitable as they were expected to be, the reasons being: -

  • One estimate is that India has a mere 4 million Internet users, mostly are from metros. According to web analysts many areas of retailing, Internet is unlikely gather a sizable slice of market. And that could be several years to come. , Especially in businesses where margins are thin.
     
  •  Despite a higher Internet penetration, cities like Mumbai or New Delhi might not be a haven for an e-tailer. Reason: for things like grocery, there is a shop out there at every nook and corner. All that an individual has to do is just make a phone call and the goods are delivered at his doorstep. Thrown in along with free home delivery is a month's credit.
     
  •  Cheap labour Thanks to easy availability of domestics at an affordable wage bill, quite a few of the rich customers hire them for doing domestic chores, which include shopping. The usual Indian aversion to use credit cards. Thanks to low penetration of credit cards and the lack of popularity of debit cards, e-tailing might find it an uphill task to catch on.
     
  • Mounting competitive pressures
    The market for online buying is still at a nascent stage. The turnover of the sector is relatively small and many players have already entered into it. Thus many e-tailers are eyeing a small market, exerting more pressure on operating margins.
     
  • Shopping is still a touch--feel--hear experience
    Unlike the Americans, Indians do not suffer from 'time-poverty' and shopping is still considered to be a family outing. Hence this type of an environment creates a problem of customer retention.

    In e-tail, customer retention by 5% leads to increase in profits by 25%. Most people buying on the net do it out of curiosity and a repeat purchase is unlikely.
     
  • Inadequate information provided when the customers discerns it certain products like clothes, cosmetics etc. involve higher customer involvement. Most customers are comfortable buying books and music on the Internet because the information required making a purchase decision is simple.

    But not so when a customer has to buy, say a blue Trouser. Here the customer wants to know: Which shade of blue is it? How does it feel on skin? How easily does it crease? This problem does not crop up in traditional retailing. In cyber space, on the other hand, the buyer is normally starved of crucial information. Only the seller knows about the true quality of trouser. This is a clear case of " information asymmetry".

What Next?

What kind of retailing model is going to deliver the goods in the Indian scenario?

    • For an answer, consider the following. The most important cost advantage of     e-tailing comes from whittled down shop front costs and elimination of intermediaries and economical distribution. For example, book e-tailing means giving out with big shops replete with slow-moving stock. Consider the case of Amazon.Com, where the orders go straight to the wholesaler. That means the working capital costs are cut down drastically. Not just that, an e-tailer is paid before he pays his distributor. The implication: need for lower working capital.
       
    • Collaborative commerce ( e-commerce)
      An e-tailer may collaborate with some manufacturers and suppliers. Something that Easybuymusic.com has done. It has hooked up with warehouses of music companies and their distributors. So every time an order is placed with easybuymusic.com, it scans the warehouse closest to the customer. In most cases the distribution costs are substantially lower since fulfillment is done locally
       
    • Create economic value
      E-tailers should create economic value for the customer rather than a curiosity value. They should find out reasons, as to why customers should buy from a web site rather than a brick and mortar store and try to communicate this reason effectively.
       
    • According to the KSA annual consumer outlook, the consumers are more comfortable buying certain items. An illustrative list with a percentage of the consumers are: books and music 47 per cent, home furnishing 29 per cent, sports apparel 25 per cent, casual clothes 21 per cent, shoes 14 per cent, groceries 9 per cent and tailored clothes 9 per cent.

e-tailing in India can be a success if the e-tailers change their business models and understand their customers more.
 


Raghavendra R. Kulkarni
Faculty of Marketing
PES Institute Of Management
100 ft Ring Road, BSK III Stage, Bangalore-85
E-mail:
kulkirr@yahoo.co.in
 

Source: E-mail August 30, 2005

  

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