Growth pill: Flipkart bets on new products, Amazon on new users
BENGALURU: Top e-commerce firms Flipkart and Amazon India are adopting divergent strategies to increase sales, reversing the roles each company has played so far in India’s $14-15 billion online retail market.
Rather than spending cash and effort on increasing the absolute number of online shoppers, Flipkart is trying to sell more products in untapped categories to its existing users. Amazon, on the other hand, will lead the expansion of the e-commerce market as it adds all kinds of products and maintains its high levels of advertising spending, aimed partly at attracting new users.
Currently, online penetration – the percentage of shoppers who have bought a product online at least once – is highest in books, smartphones and electronics. The online reach of most other categories such as fashion and furniture is still abysmally low.
“The biggest lever of growth over the next couple of years will be: increasing the online penetration in the other categories (fashion, furniture, large appliances and groceries). And online penetration increases when you reach a certain tipping point where like in mobiles, you’re able to deliver quality products at a very different price point – some 20% to 40% lower than what you get offline,” Flipkart chief operating officer Nitin Seth said.
Spending by new users helped increase Amazon India’s unit sales by 124% in calendar year 2016, compared with the previous year, an Amazon India spokesperson said in an email.
“That (growth) came from a mix of increased share of wallet for existing customers as well as continually bringing in new customers. New customer acquisition grew by 60% in 2016 and over 65% of our active customer base in 2016 was new users we acquired, driven by growth from Tier 2 and Tier 3 cities. The trends we see is in line with the changing internet demographic, with these pockets powering internet user growth,” the spokesperson said.
Amazon is now by far the biggest spender on advertising among e-commerce firms. “With our investments in mass marketing and new experiences, we are focused on building new/incremental reach,” the Amazon spokesperson said.
Until 2016, Flipkart, which started out in 2007, had led the expansion of e-commerce market in India, spending hundreds of crore of rupees on discounts, advertising and logistics. Amazon entered India in June 2013 and applied its renowned technology and retail expertise to capitalise on the market that Flipkart had built by offering even higher discounts, a wider product assortment and faster deliveries.
The reversal of roles is driven partly by the investor pressure on Flipkart, which has raised more than $3.2 billion and is in talks to raise as much as $1.5 billion more, to return cash to investors via an initial public offering. Since the beginning of 2016, Flipkart has slashed spending on advertising, among other things. The online retailer has identified high-value items such as mobile phones, large appliances and furniture as its most important products while it is trying to lower the cost of delivering low-value products such as fashion and groceries.
Amazon, on the other hand, is eager to sell all kinds of products to customers, including books and groceries. “We aim to be the ‘everything’ store — where customers can find any and all products that they are looking for. Whether they are watching a movie, buying a mobile phone, their groceries, sports equipment or even something for their pets – they come and shop on our marketplace,” the Amazon spokesperson said.
Another factor driving the shift in Flipkart’s strategy is the slowdown in the growth of the e-commerce market last year. In 2017-18, Flipkart expects the e-commerce market to increase by 40-50% and the company has said its sales may jump by 50-60% in that year, indicating it will gain market share from Amazon.
“In August-September we went through a bottoms-up strategy exercise where we looked at the market very deeply. The insights from there were validated by a lot of the intuition that Kalyan (Flipkart CEO Kalyan Krishnamurthy) brought. By November or so, a lot of this focus around increasing penetration and increasing our units and transaction per customer, deepening penetration in each of the categories, category-specific strategies became clear and over the last five months that’s reflected very clearly in our strategy, in the market moves we are making and also the various product capabilities that we are looking to build,” Seth said.