Tuesday, February 27, 2024
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For Profitability’s Sake


By Prakriti Kohli

The E-Commerce market in India is flooded with problems of low repeat purchases, high acquisition costs, and small basket sizes in the case of most companies. The only two choices left for these stereotypically appealing but less profitable ventures is either to make profits, or bow out of the business.

Due to high inventory and infrastructure requirements, it is not surprising that most of these ventures run into losses and take almost 5 years to break even. In an attempt to come out of the restrictions of high expenses and marginal growth, many E-Commerce companies are following new trends with interesting solutions. This article aims to discuss these interesting solutions.

Hiring companies for last-mile delivery
Companies like Flipkart and Snapdeal may handle their deliveries themselves because of an efficient forward logistics channel but many other companies are looking to get out of the delivery system altogether.

Shipment and warehousing costs typically constitute 10-15 per cent of the selling price, say analysts, and can bring down the overall margins. So players like Tradus help in connecting the seller and the buyer via their platform. However, the reverse logistics handling of returns, if any, is still managed by the website.

Offloading last-mile delivery may be gaining currency, but there are several problems in the model. Often merchants refuse to accept the returns and the website is stranded with unsold inventory. The only option left to them is to dispose of the products by offering deep discounts.

If there are lapses in delivery on the part of the supplier, the burden often falls on the website. How do you ensure that the supplier will cater to your consumer first and not another portals when orders coincide? The option of offloading shipment to suppliers may help to keep a check on costs in the short term, but there are questions about its ability to boost profitability substantially over time.


Launching private labels
Many e-commerce players like Myntra.com with its own label Dresserbery are launching their private labels to counter the problems of greater pressure on pricing and profit margins. The trend is still restricted to apparel, though you can see some players looking to establish a toehold in low-entry-barrier segments like accessories and toys.

There are some challenges that have to be tackled before this model can deliver on its promise. The foremost is generating awareness and driving repeat sales. This is not easy given that one is battling against established names with an offline experience in place to drive sales and customer loyalty. Most consumers are aware of how a Park Avenue shirt or a Levi’s jeans fits, they go online for convenience and better deals. The level of comfort will be missing with private labels at least in the early phase, till the consumer gets used to the new brand and the options it offers. Some experts even say the possibility of returns is higher in the case of private labels.

What will work in this case is the ability of the retailer to leverage the insights he generates from consumer traffic and online buying behaviour, and his ability to react quickly to their feedback. This is one area where an online retailer has an advantage over the offline one, as he is actually sitting on a pile of consumer data.




Facilitating subscription options
The model pioneered by magazines and newspapers across the world is now hot property in the world of e-commerce. Formulate an appealing offer and tie-up consumers for a length of time. Health-related and personal care products portal, Healthkart.com, for instance, is offering subscription services to make purchases easy for the customer and to lock in sales over a prolonged period.

The service works in a straightforward manner. Customers can select products (that are listed under the subscription option, of course) that they purchase repeatedly, say, on a monthly basis, and set the frequency of delivery, say, every three or six months. In other words, you pay the entire amount upfront and expect the products at your doorstep at the decided intervals. The retailer is assured of a steady source of revenue.

A problem is the erratic nature of supplies, and ensuring that sufficient inventory is held to match demand. While reserve stock is held for subscriptions, it may not be feasible if and when the volume of subscriptions goes up. That would demand better coordination with the suppliers, inventory management and considerable forecasting skills.

The balance of the argument suggests, some of these new trends are common-sensical. The basic criteria for online success are the same as offline:

  • Designing a compelling product/proposition
  • Selling it
  • Collecting the money
  • Fulfilling the orders without a hitch.




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