This article originally appeared on Entrepreneur India.
The retail industry in India has witnessed significant changes since 1990. It was the period when malls opened up and became a huge attraction for the masses. The 2000s saw another massive transformation with the debut of eCommerce platforms that enabled consumers to shop at the click of a button. Today, India has the third-largest number of online customers, with approximately 180-190 million shoppers as of 2021. This number is expected to reach 400-450 million by FY 2027 as more and more brands join this bandwagon to scale their operations.
The need for direct contact with the customers
A D2C wave is sweeping across the country with 800+ D2C brands present today. More and more brands are shifting to D2C to connect directly with their customers, reduce dependency on other channels, and drive sales. The channel allows them to have better control over their brand and tell their brand story in their own way. It enables them to test their products in the market, get direct feedback and figure out new products that they need to invest in. More importantly, engaging directly with their customers allows them to build long term relationships, leading to better life time value, customer satisfaction and advocacy.
For the new age, digital first brands, e-commerce platforms, be it their own brand website or marketplaces and social media platforms, have been their most critical sales channel. However, large established offline players too have started leveraging online channels. Many are building their own D2C platforms. Quite a few are buying up digital first D2C brands in their category to kickstart their online portfolio.
Challenges for the eCommerce industry
Although the e-commerce industry in India is growing at a fast pace, it is not devoid of challenges. With limited entry barriers, more and more brands are entering this space. Competition has increased tremendously. There is constant pressure to invest in marketing and produce more from less to gain a competitive edge.
Founders are worried about the reduction in profit margins because of the increased input costs. With global macroeconomic headwinds and geopolitical tensions, sourcing and raw material costs have gone up and supply chain disruptions have impacted everything. Add to that, the revenue shares that have to pay their channels of distribution. And finally, the cost of marketing. For most brands marketing and customer acquisition costs account for anywhere between 40-60% of overall GMV. Estimates suggest that marketplaces generate more revenue from advertising than from selling products online.
The other big challenge the industry faces is the sheer complexity of doing business. Managing so many different variables and moving parts means that they may miss out on opportunities. Growth cycles are short lived and time critical. Brands need to rely on data to make informed decisions in real time. This is where algorithmic eCommerce comes into play.
Algorithmic eCommerce: The key to navigating the challenges
In the simplest terms, algorithmic eCommerce is the focus of consolidating data generated from various sources/platforms into one place to use AI and machine learning to aid better decision-making and protect margins.
If you take any business, today they have several vendors, tools, platforms, and partners in their eCommerce ecosystem. Every day, the eCommerce ecosystem generates high volumes of data. Most of the data is in silos. And most brand owners end up looking at multiple dashboards across disparate systems to get even a limited understanding of the state of their business.
Bringing all the data together into one place will ensure they can be analysed. Further, machine learning algorithms can help analyze data points, identify trends and patterns and uncover risks and opportunities. Leveraging AI and ML is crucial to help brands make essential product, inventory, marketing and sales decisions.
The e-commerce industry in India has immense growth potential. As brands vie for consumer wallet share, the key to success lies in successfully leveraging data. Going forward, algorithmic eCommerce will become critical for brands in order to thrive in this highly competitive landscape and protect their margins.
Authored By Prem Bhatia, Co-Founder and CEO, of Graas.
8 Feb 2023