Discussion on Business Models in Emerging Markets
An efficient business model that understands the consumer market needs and bringing offerings at a price that the consumers are ready to pay, is key to be successful in emerging markets. India and China are among the major potential marketplace and emerging markets for the western MNCs. Flipkart rise in the India e-commerce business followed a unique business model in the emerging Indian market. It positioned itself as a trustworthy and customer friendly E-commerce brand. In India, Flipkart targeted an unmet job of the target consumer market, online shopping in the conservative Indian consumer market who were used to touch and feel before you buy. Marketplace majorly used liquid cash for commerce. In the 2000s when the internet and other sophisticated electronic gadgets, smartphones penetrated in the Indian market, Flipkart ventured into the Indian e-com business. The company marketed using the convenience to shop offerings from anywhere and at any time. Flipkart devised a business model for the same offering, in some cases even better shopping choices with unique benefits to shop from anywhere and at any time and sometimes at better prices. Although Amazon had their back-office operations in India, they came in as powerful competitors in the marketplace for Flipkart in 2013. While Snapdeal was originally in e-coupon business since 2010 and grew up in the marketplace inspired by Chinese e-tailer giant Alibaba. [2]
The rise of e-com business in India
Flipkart had continuously evolved their business model, tested, and has been including their learning to improve. Besides an innovative business model there are other factors that make market entry and ease of doing business far easy from what it may sound like to be. Some of those factors include regulatory risks, cultural difference, trade and tariff barriers and institutional norms Flipkart had set up a complex business structure to abide by the regulatory restrictions initially as a warehouse model but then a complex structure integrating B2B and marketplace model via a subsidiary. The company envisioned targeting e-commerce business to tier 2 and 3 cities as well and had invested heavily in the advertisement and marketing strategy. Amazon and Snapdeal also entered as a pure market player but due to the same regulatory restrictions, the business models did not allow for differentiation based on unique products rather it was a race to sign up for more sellers and thereby increasing the portfolio of products and offering variety.
The e-com giants have brought the offerings more accessible and affordable to every Indian home. From a business perspective, this may seem like a business model with less to zero profit margin. But it is not quite true. The marketplace business model came along with an overall lower customer satisfaction index often due to the delivery issue, faulty orders and fraud occurrences. Flipkart invested heavily in improving the logistic networks and capabilities called Ekart. The company also opened warehouses and distribution centres and set a chain of physical outlets. While Amazon India has opened up fulfilment centres in several states in India and by far is the e-com company with the largest storage space in India. Snapdeal had partnered with other delivery services to be recognized for the fastest delivery time. [2]
Flipkart, Snapdeal and Amazon had made giant leaps in marking their footprints in the Indian market, and they have exchanged positions in the sharing the marketplace. They made a groundbreaking business model that combined local responsiveness, cost-effectiveness and efficient, convenient payment options wrapped with a convenient shopping experience for all income tier population. Moreover, the penetration of smartphone had enabled more consumers to be internet enabled, and the Indian economy started seeing a boom in the e-commerce business.
Innovative customer satisfaction strategies
The companys strategies to increase customer satisfaction included continued innovative efforts to keep the cost low, 30-day return policy, cash on delivery and other easy online and cash payment options. Flipkart undifferentiated targeting strategy, since people of all demography purchase items online which is available to everyone where the delivery is possible. Competing marketing strategy from Flipkarts Big Billion Days to Amazons Great Indian Festival and Snapdeals Unbox. These initiative were two way beneficial, for business as well consumer market. It helped them to clear inventories, invite new buyers as well as raise the sales volume. The profit margin and revenue strategy were quite low as the initial years of launch they were focused on the marketplace share. This is in contrast with the most business model strategy of the western MNC in the emerging market who launch their products although at competitive prices and despite being locally responsive are targeted at mostly the highest income tiers which are not just sufficient to derive the returns.[1]
Established MNCs entering emerging markets should take start-up strategy rather than identifying the new markets as additional outlets for existing offerings. To study and understand consumer needs is key to a successful business model in the emerging market. All 3 e-com giants were very customer centric and competed for each other on their strategies. The companies also took an interesting acquisition strategy. Flipkarts strategic move with acquiring Myntra, Jabong and eBay, India had played a key role. Although the merger deal with Snapdeal fell apart, it is certainly a strategic move on Snapdeal end to pursue with a leaner business and have defines its own strategy pillars to excel that included product delivery and selling through the only brand authorized sellers among others.
E-payments in India
Innovations made in the payments domain has made a huge impact on the Indian consumer market. It started off with shifting the culture from liquid cash payment to digital payment. But to be able to better reach the consumer market who are fairly new to e-business, payment options like Cash on Delivery (COD), No cost EMI, Buy now pay later helped them reach closer to the consumer markets. These innovations lifted the budget criterion on the middle and low-income tier shopper population and made the offerings more accessible to the consumers. Return on these innovative investments helped Flipkart and Amazon increase their market share. Furthermore, in 2016 with the changes in the Indian government regulation to allow 100% FDI in the marketplace model was very wisely used by all 3 companies to distribute their private labels. This was used as an opportunity to move forward one step from a profitability standpoint as this needed less capital investment, product uniqueness and more control over pricing, production and inventory. Amazon had an edge over Flipkart and Snapdeal with prior experience with like Kindle. They also tried to eliminate intermediary which saved distribution and marketing cost
Analytics and AI technology
Recognizing four main aspects of a new business model in an emerging market Customer Value proposition, profit formula, key processes and key resources [1] these companies now have moved on to like AI, machine learning and statistical modelling to predict customer demands, understand customer behaviour and improve customer segmentation. Flipkart used a data-driven approach to learn about customer insights and utilized the outcomes to improve upon customer experience. Flipkarts Mira, a Natural Language product that assists shoppers while shopping has driven their revenue number up by 12-14%. It also has helped with lifting the language barrier for the Indian online shopper. This has helped them with reaching the tier 2 and tier 3 cities as well. Product recommendation using AI technologies increase their sale numbers but also their customer base. Amazon India went on a step ahead to use these technologies in delivery service to even deliver orders from its rival platforms, Flipkart and Snapdeal. Flipkart had used the data technologies not only to be customer-centric but also as a tool to better align their R&D, manufacturing and supply processes for more profitable solutions
Omni-channel Retailing:
In India with over 12 million Mom-and-Pop shops dominating the retail business, government regulation to a certain extent has covered and provided support them in the business. It is also to be noted that with Flipkart strategy with Omnichannel retailing would give the opportunity for the consumers who are not very convinced with online shopping to go to the nearest store and the shop assistant can help them purchase online either after having to look at the offering in the shop and pick at the store as well. This strategy would be mutually beneficial by bringing customers to the local retail store. This served to be the additional business for the local stores and at the same, these entrepreneurs would get commissioned from the online platforms for the sales through them. For the online platform, this would mean faster shipping to the consumer as well. Among the three giants, Snapdeal was a late entrant with introducing the mobile wallet and wasnt as much successful as Flipkart and Amazon. Citing the example business model by Godrej & Boyce in India, when a detailed study for customer needs was executed before Chotu Kool was designed or before Tatas $2500 Nano car was thought of. Likewise, the business models that Flipkart, Amazon India and Snapdeal are also evolving based on the customer needs, from a payment, delivery, product portfolio, cost etc. perspective. The customer Value proposition, CVP must meet customer demands effectively in access and affordability. [1]
An open mind is the biggest asset for an emerging market. Often times it is important that in emerging markets we may have to drift significantly away from the traditional process of delivering the offering. Operating with an innovative business model that is completive, innovative and locally responsive. In the road ahead for the , the companies are setting up the digital payment platforms to increase saving and retain customers within its ecosystem. But on the other hand, the situation for online transactions was not very favourable for rural India. Partly it was due to lack of awareness and threat for security and trust. Flipkart and Amazon India have now started offering more financial products and a consumer ecosystem to be built around this. As another challenge to the e-com giants in India is the regulatory policy which now has restricted for any single vendor for more than 25%of overall sales. This has enforced the e-com giants to bring in more sellers. The companies are making huge investments on payments, technology and logistics, however, the online retail mark in India is still not mature enough. If Tata or the reliance groups in India would make leaps into the e-com business, the war only gets tougher and for the better of the Indian consumer market.
References:
[1] Nair, Matthew EyringMark W. JohnsonHari. New Business Models in Emerging Markets. Harvard Business Review, 15 May 2015,“>https://hbr.org/2011/01/new-business-models-in-emerging-markets.
[2] Sethi, Rainny Shuyan XieVijay. Flipkart vs. Amazon vs. Snapdeal: Winner-Take-All Battle in India. Harvard Business Review, hbr.org/product/flipkart-vs-amazon-vs-snapdeal-winner-take-all-battle-in-india/NTU169-PDF-ENG.
