Online Retail: The New India- A layman learns something new...

Online Retail... frankly, only a few months ago I would very likely have thought of it in utter disdain - not for India; long way off; etc etc etc...

One fine day, I got a mail in my inbox - A voucher offering 2 mocktails at Barista @ 99/- (or some such); Pay Cash On Delivery. I was surprised, and frankly tempted- COD. No security issues, I thought. Unfortunately, I still did not make the connection, and put it out of my mind as a sales promotional effort undertaken by the host organisation. Well, as it turns out, gmail (or any other mail for that matter) had other ideas, it seemed. A few mails from other such examples later, I cottoned onto an online site stating Pay Cash On Delivery! Hold on a minute, I thought. What's going on?

To my mind, and to be honest - to most other people's mind, the biggest stumbling blocks to increased penetration of online retail in India lay in the low penetration of Credit Cards / Debit Cards, Low Consumer Awareness, Resistance towards and distrust of online payments due to security issues / doubts. In one masterstroke, 2 of the objections stood removed, thereby unlocking a potentially vast market. This experience brought my mind to an article by the redoubtable David Aaker: http://blogs.hbr.org/cs/2011/09/will_retailing_ever_be_the_sam.html, wherein I had expressed my reservations on the following grounds - namely,  payment gateways, trust, time, touch/feel factor and safety.The COD system deals with 2 of these, still leaving trust and touch/feel factor.Our conversation is given below:

Vishal V Kale 10/23/2011 08:46 AM

Hi David...

Interesting Article, and food for thought - there is no doubt about that. The twin combo of smartphones and e-retailing is indeed interesting.  Even 2 months ago, I would very likely have dismissed your article as new - world stuff, and applicable only in the new world etc etc - this, despite being quite adept at, myself a user of,  and well versed with -  the latest developments in Technology. Even so, I still have my reservations. 

But first, the plus point: About a couple of months ago, we decided to visit out ancestral town in Ratnagiri. (I am an Indian residing in India). Ratnagiri is about 240 kms south of Mumbai (Bombay). While planning for the trip, we decided to do a google search of the town and the hotels (It was our first visit in my 39 years). To our surprise, we found a very detailed representation of the same. Not only that, we were able to book tickets for a local AC bus service, obtain hotel reservations in a mid level hotel - all from the convenience of our home. This is a case of a small district in Maharashtra, India. The penetration of technology is indeed rapid just about everywhere. Lesson: if you are not on the internet, you may indeed be missing business...

However, your article is more about commerce through the internet, and harnessing technology in a more powerful way. I still have some reservations about that: payment gateways, trust, time, touch/feel factor and safety. While technology can be a powerful search tool - like, searching retailers over net, contacting them and checking availability (something that we do as a matter of course nowadays), making payments over the net is still associated with a high amount of risk in a customers' perception. Then there is the trust, touch-and-feel factor and safety which go hand-in-hand together in a customers' purchase decision. So while we may see a major shift in some categories - like books for example ( esp when combined with pay-on-receipt ), I very much fear that a large scale shift is not going to take place anytime soon - and maybe never. 

Quite simply, there will always be a category of products where these 3 factors will still be critical. As to the rest - it has already happened. With the exception of Grocery, we already harness the power of the internet on a daily basis for our purchases with the objective of searching options. I would like your opinion on these thoughts that have occurred to me...

Regards,

Vishal V. Kale

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David Aaker 11/11/2011 01:52 AM in reply to Vishal V Kale

Vishal, you are correct to be spectical,  the checkless society 50 years later is still not here.  However, there is data showing that the effect I discussed is occuring.  The extent to which it penetrates is still unknown and it might end up being less than earthshaking

My thoughts were on the lines that the time gap in receipt of product, combined with the fear of in-transit damage would be a significant stumbling block for online commerce. Additionally, the lack of touch-and-feel and the attendant inability to compare products and features as well as experience them personally would still ensure a muted response in a large majority of product categories. There would, of course, be a significant impact in categories like books, or some gift items where the above 2 factors do not play that significant a role. The other major factor in favour of online retailing is the price differential - companies are able to pass on price savings garnered by by-passing the entire distribution chain to the online retailer, which means cost savings for the consumer, and price becomes a pivotal advantage - and indeed - a USP for this format.

Online retailing, is however, also beginning to make inroads into other product categories. I have seen people pick up consumables like printers refills etc for their home computers, other gadgets - and today, I learnt of one of my personal relations' intention to pick up a couple of durable products online. This is an interesting change, and has major implications for business as a whole in India, and is bound to grow as the penetration of computers and smartphones in India increases. The twin combination of complete product information and convenience, in addition to price savings, is ensuring its steady penetration. Perhaps the most critical aspect of this is that this is one trend that does not have boundaries - the likelihood of an online transaction will be equal in the metros and non-metros of India. While today, the scenario will per-force be skewed towards the metros, I see equal growth coming in from the tier-2 cities as they bridge the awareness gap, and as purchasing power increases.

What remains to be seen is the extent to which this trend penetrates... in the words of Mr Aaker, "Vishal, you are correct to be spectical,  the checkless society 50 years later is still not here.  However, there is data showing that the effect I discussed is occuring.  The extent to which it penetrates is still unknown and it might end up being less than earthshaking" Yes, the change is happening - that is indeed true. If you add to this scenario the power of a smartphone (whose penetration is going to be far greater than, as well as grow far faster than computers) , as argued in the article, then the potential is indeed tremendous.

Add to that the final clincher - the same levels of loyalty and conviction are shown by consumers who are habituated to the new mode of retail as compared to traditional purchase behaviour. These consumers do not do it as a one-time action; rather it is a time saver and a convenience for them. Why should I spend time shopping around, when I get it done at my own convenience is the common refrain of these consumers. (Yes, price is not the most important factor in their criterion - they are the creamy layer of society; they are also aware of and used to technology). We can safely draw a conclusion from this: that there is now a core set of consumers who have crossed the novelty-factor threshold, and are hooked to it for the value addition it gives to them. There is another learning here: how many people- consumers, if you will - are there in India as of today, who fit the bill? Among this target segment of well-heeled (to use a layman term), educated class, what is the percentage of penetration? Certainly not 100%; perhaps not even 40% is my take. And even 40% may be stretching it. For the rest of the market - traditional models of retailing are still paramount

In conclusion, I can now understand the Brand Guru's statement, as well as articulate my own doubts and position more lucidly: While the change is indeed happening, the extent and the speed of the change remains to be seen. Will it be a niche industry? Or will it topple the traditional models? If so, by when? Interesting questions... time will tell. It may turn out to be less than earth-shaking. But one thing is for sure, the advent of 3G, Smartphones, Online Retailing and its attendant strategies (Cash On Delivery, Pricing etc) are posing the strongest ever challenge to the traditional models... Let us see what the outcome will be. Time Will Tell... Time Always Does!