Smartphone companies teaming up with e-commerce websites is not a new phenomenon. However, the trend of having an “exclusive partnership” with e-commerce sites is relatively new and has evidently picked up of late -- especially after the Flipkart-Motorola partnership for the Moto G, which turned out to be the most successful, highest-selling smartphone in Motorola's history. The duo continued their partnership with the successful launches of the Moto X and Moto E smartphones in India. Recently, Flipkart teamed up with Alcatel for the Idol X+, while Snapdeal teamed up with Xolo for the Q600S.
The new trend of exclusive tie-ups is very interesting as it not only indicates where the e-commerce ecosystem is headed, but also the modern customer’s preferences. How huge will its impact will be on the the e-commerce segment as well as the offline retail segment? We talk to the industry experts and analyse the new trend in detail:
Exclusive tie ups: A new trend?
India's e-commerce segment is still in its nascent stages. However, in a very short period of time, it has witnessed several changes – the concept of marketplaces, rise of online classifieds (C2C) and ever-increasing competition. Even as the industry explores and expands, exclusive tie ups is the latest trend to hit the e-commerce segment. Will the new trend become mainstream in the near future? Or is just a short-lived hoopla? Why are brands choosing exclusive tie ups?
“It was bound to happen actually. I believe it will continue going forward. Reasons why brands.. especially why smartphone companies are choosing online partners for exclusive launches is because of several reasons. One is from the distribution point of view. The smartphone segment is extremely competitive nowadays and prices are going down on a daily basis. So, it's important to save on costs and what better way to save on costs than actually running it through only online because channel costs that exist are significant for any offline player. There are partners, distributors, wholesalers, and retailers. And then it gets passed on to consumers. All that is saved in online,” says Mr. Tony Navin, VP – Business Development, Snapdeal in an interaction with Digit.
ADVANTAGES
Cost is certainly the first and foremost reason. Smartphone companies spend a lot on maintaining distribution and channel partners across the country. The exclusive tie up ensures the smartphone companies save on that cost as well as leverage already established networks of e-commerce websites in the country. Moreover, they now have to invest less time/energy on monitoring the distribution.
Explaining the advantage of the arrangement, Mr. Tony Navin adds: “...Another reason is also you have much better control over the product, unlike with offline retail where you have to travel across the country and manage stocks everywhere. With online you can ship out products from one location. And of course there are many other factors. Now you are creating a lot of buzz online, especially for segments like smartphones and tablets for which the kind of customers being targeted are already Internet savvy. That segment of consumers can easily be reached out with online media.”
“These partnerships are an indication that e-commerce is being looked at as a genuine sales channel and not an ancillary one anymore. The smartphone companies see an opportunity with e-commerce to shorten the distribution channels and still reach the intended audience,” points out Mr. Ashish Jhalani, founder, eTailing India.
Xolo Win Tab exclusive launched on Flipkart
CHALLENGES
As we have seen in the recent past, ensuring stock has emerged as one of the major challenges e-commerce sites face. In case of the Moto G, Flipkart struggled to ensure an uninterrupted supply. One of the reasons behind the interruption is considered to be the unpredictable demand for a product. Flipkart did try to rectify that with the launch of the Moto E. However, frequent “out of stock” signs and longer waiting periods are evidently a huge turn off for a consumer. How can this be managed better?
Well, better planning and understanding of customers can help! “Actually it comes down to how the team has planned. Better planning has to be done in advance so that a customer has no bad experiences. With time these things will be sorted, and will not be problems for major brands,” adds Mr. Tony Navin.
Better planning to re-solve 'out of stock' problems?
Will tie-ups drive e-commerce growth?
Without taking credit away from other categories, it's evident that online personal tech sales have gone up significantly and helped boost the segment overall. Bringing the “exclusive online” strategy into fray, online shopping figures for smartphones and other gadgets is certainly going to rise.
“Getting people transacting online is a core focus for all e-commerce. That first transaction gives a user confidence in the ecosystem, delivery mechanism and reliability. Taking the example of the Moto E again, this is clearly a popular product. By making it available online only, this encourages more users to go online. We have found that as people discover the merits of online shopping, it becomes a habit. This helps e-commerce as a whole,” says Mr. Rohan Bhargava of Cashkaro.com.
“The market is very large. This (e-commerce) is just one segment. Of course, it will help. It will help build confidence in customers that it is okay to purchase online. There are still people who aren't very sure about online shopping. So I think these factors do help. Exclusive launches do help the e-commerce market overall,” adds Mr. Tony Navin.
"We don’t believe that the topline impact is substantial since most of these ‘exclusive’ launches are usually not best-sellers. It helps build respect in the minds of consumers that Online is destination not only for great deals but also great for finding latest and newest. Boost to e-Commerce will come from building additional propositions like affordability and easier access to credit," says Abhijit Bhandari, Founder, ONEMi.
ASSOCHAM's paper on “Online Shopping - Review & Outlook in 2013” says electronic gadgets were 3rd largest contributor e-commerce growth in India(Image courtesy: Dazeinfo)
"According to a TCS Gen-Y survey 2013-2014 68% of the teens shop online. Going by these stats and our own experience of exclusive launches, the industry is upswing on this phenomena. The younger audience have a crucial role to play when it comes to buying technology products. These tech-savvy customers prefer a smartphone that adds to their personality as well as, keeps them on the go Therefore, the response is good when it comes to exclusive launches, as well as for the pre-orders. The customer interest of such products is very high. With high sales from markets like Ahmedabad, Kolkata, Lucknow, Pune, Jammu, Surat, Panchkula etc. other than the main metros of Delhi NCR, Mumbai and Bangalore. For exclusive launches, we are mostly out of stock. Also mobile phone is one category that keeps customers interest alive as frequency of changing smartphone in todays youth is even higher than some of the utility shopping items like apparel," says Mr. Narasimha Jayakumar, COO, HomeShop18.
Pressure on offline retailers?
Technology, especially the Internet, has changed the way we shop. Consumers today find out the best deals on the go. Online shopping gives them the comfort of home delivery, ease of return policies and lots more. Offline retailers, on the other hand, are under pressure not just to attract customers to their stores but also to ensure a buying decision. One of the new trends is customers visiting stores just to try out the products and then buying them later online. Will the new “exclusive tie-up” hurt offline retailers?
“As online gets bigger, traditional offline retail shall definitely have to bear some market share losses. However, the major strength for India in any form of retail is that the overall market itself is growing. As income levels rise, millions more are now buying products from electronics to clothing to FMCG. In this growing market even if offline loses some market share, with the size of the pie growing, I am confident everyone shall benefit,” adds Mr. Rohan Bhargava.
“... with online retail gaining popularity, brands may turn their back on offline retail platforms because online retail reaches people faster. The world of smartphones and tablets allows customers to get what they want, while they are on the go. Facilities like checking and comparing prices, writing/reading product reviews online and posting comments about products on social networks draws more customers towards online shopping. With the large number of pros for online retail, partnership between brands and offline retailers may suffer. But if brands maintain equal value proposition in online and offline partnerships, then offline retail won't be impacted significantly,” says Mr. Pradeep Katyal, CEO, Utsavfashion.com.
Pressure high on offline retailers? (image courtesy: Outlookbusiness)
Mr. Manu Midha,Vice President, Strategy and Operations, Infibeam.com, says: “Pure play offline retailers are now rethinking their strategy of using physical and online media for offering an integrated experience to end customers. They are rethinking online media not as another channel to sell, but also as a media to reach out and drive traffic to their shops. Most of them have their own online presence and are using their offline brand and recall to build up sales on these sites. Some of them are also using marketplaces to sell their products and grow throughout.”
Growing customer confidence in e-commerce?
With more and more people buying products online, especially items priced above Rs. 5,000-10,000, the trend shows a growing confidence in the e-commerce ecosystem in the country. For products such as smartphones, where the product is standard, manufacturer warranties are reliable and retailers offer easy returns, this trend should only grow.
“It is a very healthy trend to see online purchases above 10k. I believed one large factor in the growth is that the trust deficit has to be bridged and these large purchase are indicating just that,” says Mr. Ashish Jhalani.
“Besides, online retail and even m-commerce is playing a pivotal role in strengthening the positioning of online shopping as compared to offline shopping. In India, customers are aware of this trend and are slowly and gradually shifting their preference from offline to online retail. And smartphones and tablets have penetrated that section of the customers successfully,” says Mr. Pradeep Katyal.
“In any market when online commerce picks up customers typically try out low value products for the lack of trust in the platform and lack of known names in the market. But as they buy and have a satisfactory buying experience they are ok with taking higher risks when buying online. We see this growing in the future. People will start buying a greater degree of touch and feel (non branded) products from e-commerce stores as they gain comfort in the media,” says Mr. Manu Midha.
Where is it all headed?
According to many, the new trend is just another part of the evolution of the e-commerce segment in India. While offline retailers still enjoy the majority of market share, the online segment is growing at a rapid pace. Will e-commerce sites overtake the offline retailers?
“To get a better handle on this trend, let’s consider developed economies like the US. The US is home to giants like Amazon, Ebay, Expedia and more. Even there, e-commerce sales account for only 6-7% of a massive $4.7 trillion market. Clearly the trend is more online but it’s still a small percentage. So translating that to India, I don’t expect offline to get suddenly overshadowed by online. Yes, offline will need to get more competitive and re-think their business model a little. Which is where marketplaces like Tradus, Amazon and Snapdeal are helping offline stores sell online. Offline should remain a huge percentage of retail in India for many years if we extrapolate from more developed economies,” says Mr. Rohan Bhargava.
CO-EXISTENCE?
Experts believe e-commerce and offline retail segment will continue to co-exist.
“e-commerce has never taken over any retail market even in significantly developed economies. There will always be a co-existence scenario. As the overall market grows we will see growth in both sectors. I do not see offline retail shrinking due to online growth,” explains Mr. Ashish Jhalani.
“Online and offline retail will co-exist for a long period of time in India. Online will challenge offline retail and grow over time, but given the vastness and diversity of India, offline retail will continue to exist and thrive. We envision a scenario for the next few years where both will co-exist. Offline retailers will leverage online media to drive traffic and offer a multi channel experience to customers. Online retailers will continue to get more customers and find greater adoption from first time buyers. Customers will also get used to the platform and trust will build up over time,” adds Mr. Manu Midha.
"These markets will co-exist. We do not see any challenge for the offline retailers in the future as it is subject to the will of the customers. Although it will be important for retailers, both virtual as well as offline, to drive customer experience seamlessly and provide the right set of products and services to the customers by analyzing their buying behavior. People check out some products online and buy offline," adds Narasimha Jayakumar, COO, HomeShop18.
Concluding,
We expect to see more exclusive partnerships between smartphone companies and e-commerce sites in the near future. While the arrangement is helping e-commerce sites thrive well, offline retailers need to do more; perhaps offer more competitive prices and deals. Even though offline retailers still hold the majority of the market share, looking at the current trends, e-commerce sites are rapidly improving in overall market share. Soon, we may see both groups possessing equal market share.
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