E-commerce comes of age in India

For India's e-commerce industry, the times they are a-changin’. While the penetration of e-commerce is low, it is growing at a fast rate with a large number of new entrants, reaching an inflection point.
Written by Abhishek Baxi, Contributor

For India's e-commerce industry, the times they are a-changin'. While the e-commerce penetration is low compared to the United States and several European markets, it is growing at a much faster rate with a large number of new entrants.

Most industry analysts agree that the growth is at an inflection point. India's e-commerce market was worth about US$2.5 billion in 2009, US$6.3 billion in 2011, and $14 billion in 2012. The country has close to 10 million online shoppers and this number is growing at an estimated 30 percent.

"With approximately 8 million Indians shopping online in 2012, the online shopping industry in India is growing rapidly and will continue to see exponential growth," said Rajan Anandan, vice president and managing director of Google India. "By looking at the trends in 2012, we expect 2013 to be a strong growth year for players who're focused on growing categories like apparels and accessories, and niche product categories like baby products, home furnishings, and health nutrition. We expect the growth to come from outside of the top eight metros."

While there have been some obvious deterrents of shopping online like the inability to touch and try the goods before purchasing, concerns over receiving faulty products, and security concerns in posting personal and financial details online, there are unique aspects of online shopping in India.

For example, cash-on-delivery is the most preferred payment method. India has a vibrant cash economy and as a result, 80 percent of e-commerce transactions in the country are cash-on-delivery. Also, direct imports constitute a large component of online sales. There is huge demand for international consumer products that either are not available in India or are expensive on retail shelves.

On the other hand, online shoppers have also been positive toward global trends. Online classified sites like eBay and local players--OLX and Quikr--see more consumers buying and selling second-hand goods. Also, major e-commerce players like Infibeam and Tradus, and Flipkart soon, are also adopting the online marketplace model.

"Looking at the online shopping experience holistically, streamlining the entire process is what led to the rise of e-commerce in India," explained Amod Malviya, senior vice president and head of engineering at Flipkart. "For example, factors like cash-on-delivery, and increased automation of supply chain and logistics have gone a long way in addressing concerns like lack of credit card penetration and bottlenecks in last-mile deliveries."

"Increased application of technology in both backend and frontend processes have improved the browsing experience, and provided consumers with greater transparency when it came to the order process and so on," Amod added.

He breaks down a visitor's journey in three phases. "One, find and discover the product of need. Two, decide. And three, transact. Of these three, in our case, the transaction step has the least dropoffs, primarily limited to the payment gateway's success rates. Cash-on-delivery is a great help here.

"Factors that impact the customer during the decision phase are many, and also vary from category to category. Availability and pricing usually play a significant role. Images of the product have a significant role for some categories. Lastly, richness of the information about the product as well as product reviews have a noticeable role to play."

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