Acquiring an online customer cost close to INR 1500 to many Internet retailers. This is a huge cost considering the order size, etailers receive. The cost can be justified only through multiple repeat purchases. This is an area companies should look to reduce acquisition cost or increase sales. New etailers are mushrooming every other day and customer loyalty is hard to achieve in India. Tier-1 companies are seeing huge demand so they are comfortable at this point in time but not for much longer time.
Couple of other things like high inventory cost and shipment cost are creating huge burden on etailers. High inventory cost as companies are holding lot of inventory to receive bulk discount from their suppliers that they can pass it on to the end consumers and for Shipment cost – Many etailers have their own in-house setup to deliver goods, this requires high initial setup cost, but lower delivery cost, while many have outsourced it and paying more per transaction. It is totally depending on the scale of operation.
Typically, for any company there are two cost associated Fixed and Variable. Fixed cost can be reduced on per item basis as volume starts growing. Many have started scaling their operations and growing rapidly to reduce fixed cost but investing more month on month on various marketing activities in turn increasing the cost. It’s a vicious circle. But other costs like warehouse, shipping, packaging can be reduced.
There are couple of innovative business models that many etailers are now focusing on to increase profitability.
- Multi-category Retailing – Firstcry has got Goodlife to cross sell many other products that can be added to a single cart and shipped together. Similarly Fashion and You earlier started with Women apparel has diversified to Men, kids clothing, Home décor , electronic goods etc.
- White Label products – SherSingh (bough by Myntra) sells products on their own brand names
- Deals sites became retailers – Snapdeal converted into a proper etailer
- Just in Time model –(JIT) – Etailers became digital storefront, like Aaramshop.com. They carry almost zero inventory. Once the order reaches to them they pick and deliver the goods.
- Bulk and off-season buying – Many Internet retailers buying things off season to get deep discounts and sell 3-4 months down the line with good profitability.
Image credit: Zinnov