Professional Documents
Culture Documents
Table of Contents
Online Retailing
Business Models
Size and Growth
Segmental Analysis
Traditional vs Online Retailers
Payment Mode
Business Models
Growth Phases
Margins, Costs and Investments
Internet Advertising
Overview
Segmentation
Pricing Models
Online Classifieds
Online Travel
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Table of Contents
Online Retailing
Business Models
Size and Growth
Segmental Analysis
Traditional vs Online Retailers
Payment Mode
Business Models
Growth Phases
Margins, Costs and Investments
Internet Advertising
Overview
Segmentation
Pricing Models
3
E-Commerce
On-line
Retailing
Internet
Advertising
Online
Classifieds
OTA
BUSINESS MODELS
There are three business models that use internet as a sales channel.
One is the market place model used by 'eBay' where the retailer provides an online
platform that connects the buyers with the sellers. The revenues earned are in the
form commissions received from each completed transaction.
Another is the group-buying or deals model used by 'groupon'. In this model, the
retailer acts as an aggregator of services such as restaurants and spas for the buyers
and negotiates with the sellers for deals on bulk purchases. Revenues earned are in
the form of commission received for every deal executed.
The third model is the online retailing model wherein the player, a traditional
retailer, sells products to customers using the internet and also takes ownership of
the delivery of those products either through his own network or through a thirdparty.
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Though growing fast, the share of online retailing is expected to reach only to
3.4% of organized retail by 2014-15.
ONLINE RETAILING : SHARE IN OVERALL RETAILING
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Mobiles and Cameras constitute 60% of the online electronics retail and the
average ticket size is about Rs. 1500 Rs. 3000.
ELECTRONICS
Mobiles are the most popular category sold online followed by cameras, which
together account for over 60 per cent of the online electronics retail.
Other fast selling categories under electronics are IT accessories, memory products
( like hard disks, pen drives) and small kitchen appliances.
The average ticket size for electronics is around Rs 1,500- 3,000.
This is much lower than the average ticket size in organized brick and mortar
stores, which is around Rs 12,000- 15,000 reflecting the products retailed online are
low value items.
Moreover, products which are bulky (like the refrigerators, washing machines) are
not preferred by online retailers on account of the logistics involved.
The gross margins in this segment are on the lower side at around 4-10 per cent.
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Online retailers are making lot of efforts to sell lifestyle products as they have
very high gross margins.
LIFESTYLE
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Books are the most suitable category for online retailing and were the first
category for online retail in India.
BOOKS
Books were the first category to be introduced for online retail in India.
This category is extremely suitable for selling online.
Books are easy to transport and there is also no touch and feel involved.
Also, the huge variety that is available makes it impossible for a brick
and mortar retailer to match the product range offered by online retailers.
(Long-tail)
However, average transaction size is low as compared to other categories
at around Rs 400-500.
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Books are the most suitable category for online retailing and were the first
category for online retail in India.
NICHE PLAYERS
Categories such as food and grocery, FMCG products, baby products, ayurvedic
products, gifts and flowers etc account for the balance 5 per cent of the online retail
market.
The online food and grocery retailing model is difficult as the products are
perishable besides being widely available offline.
Most online players in this category operate in select cities such as Mumbai,
Bangalore, NCR and Pune.
Niche categories like baby products and FMCG (only wellness products ) are also
gaining popularity, following the success of international counterparts like
Diapers.com and Soaps.com.
Non-availability of niche products through the traditional channels will b e t h e
main driver for their success on online retail.
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Pure play online retailers dominate the market as the share of traditional
retailers in the online retail space is only 7-10%.
TYPE OF ONLINE RETAILERS
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Payment Mode
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The share of cash on delivery mode of payments is the highest among all the
payment options for online retail in India.
SHARE OF ONLINE PAYMENT OPTION (2011-12)
The cash on delivery method for online
payments is peculiar to India and certain
other Asian countries where there is a
greater preference for cash based
transactions .
Poor network connectivity, credit/debit
card penetration and inhibitions about the
security of online transactions have made
online payments less popular in India.
The cash on delivery mechanism has
helped Indian customers overcome these
inhibitions and has propelled the growth
of online retail in smaller cities where the
credit/debit card penetration is relatively
lower.
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BUSINESS MODELS IN
ONLINE RETAILING
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PHASE 1: STARTING UP
From starting the online retail business to gaining volumes of around 2000
transactions per day can take a player 2-4 years of time.
Investments made in this phase are made primarily towards developing a
strong and robust IT infrastructure.
The business model followed in the initial stages is typically on demand
sourcing; no significant investments are made in warehousing and logistics.
Players in this phase typically operate in 1-2 product categories.
The players focus on creating a brand name and may incur higher advertising
and marketing expenses in this phase.
As customers are acquired through attractive discounts, gross margins tend to
be on the lower side.
The failure rate for companies is extremely high in this phase. Only 1-2
companies out of 20 are likely to survive and move on to the next phase.
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PHASE 2: GROWTH
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Online retailers offer discounts on the products they sell to attract customers.
Hence their gross margins are typically lower than those of traditional retailers.
MARGIN COMPARISON
Category
Gross margins
Online Retailers (Net Brick and Mortar
of Discounts)
Retailers
Books
5-10%
25-30%
Electronics Mobiles
4-6%
5-9%
Electronics Others
8-12%
10-14%
Lifestyle
25-30%
30-45%
FMCG
10-12%
10-12%
Overall
14-18%
20-22%
These gross margins are indicative and could vary depending on the
growth phase and the business model of the online retailer. Gross margins
improve with greater scale and bargaining power.
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Online retail requires only one-sixth the capital needed for traditional
retail.
CAPITAL INVESTMENT : ONLINE RETAIL
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Online retail requires only one-sixth the capital needed for traditional
retail.
CAPITAL INVESTMENT : COMPARISON
Online Retailers
The major areas of fixed capital expenditure for an online retailer are
technology and supply chain.
In phase 1, most of the investment requirements are for technology
In phase 2 and 3, the majority of the investments go for supply chain.
Traditional Retailers
In comparison, traditional retailers who would wish to achieve similar sales
would have to invest around 6 times more in phases 2 and 3.
While a traditional retailer would have to replicate inventory in every outlet,
the online retailer enjoys the advantages of stocking centrally, which brings
down the inventory carrying cost.
Moreover, online retailers have the advantages of selling items which may not
be in stock through on-demand sourcing.
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Gross margins of a retailer tend to improve with increase in the scale of operations.
While certain cost heads such as logistics have a more direct correlation to sales,
employee costs tend to decline with increase in transactions..
COST STRUCTURE : ONLINE RETAILERS
Note: All cost break-ups and margins are expressed as a percentage of revenues
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Internet Advertising
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Note:
1. Others include Internet
and Films
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The major advantage of internet media is its target customer group and the
trackability.
INTERNET VS OTHER MEDIA
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GROWTH DRIVERS
Internet subscriber base is projected to surge to 135-140 million in 2014-15 from
just 18 million in 2009-10
Average time spent on Internet is expected to increase with the availability of
richer content
Greater accountability of the medium in terms of ability to measure and generate
leads will lure advertisers
Focussed or targeted advertisements based on IP address will attract local
advertisers
Increased popularity of social networking sites will lead to innovative
engagement models and greater brand affiliation
With established ad agencies being present in the Internet advertising space,
advertising on the Internet is likely to see increased focus, leading to greater ad
budget being spent on Internet advertising
Growth in e-commerce would result in higher advertisement spends apportioned
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digital media.
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2014-15
Internet advertising is expected to grow at 34% CAGR between 2009 and 2014
to reach Rs. 28 bn.
GROWTH RATE
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Of the total Internet advertising spends, the BFSI, telecom, travel and
hospitality sectors along with the Internet companies (matrimonial
websites, job portals, travel websites, etc) account for about 65 per cent
share.
While these verticals were the early adopters of Internet advertising
because of the sheer nature of the business and the target audience, sectors
like FMCG, consumer goods, education and others have also been
increasingly adopting this medium to reach their target audience.
Another unique feature of the Internet space is the presence of numerous
small advertisers who restrict their ad spends only to Internet.
As per the industry estimates, 35-40 per cent of the advertisers in the
Internet space do not advertise on any other medium.
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2011-12
INTERNET ADVERTISING :
PRICING MODELS
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ONLINE CLASSIFIEDS
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The major sources of revenues for the online classifieds segment depend
on the segment but the major source is the subscription revenues.
ONLINE CLASSIFIEDS : REVENUE SOURCES
2012
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2013
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Online recruitment is the biggest category with a share of 63% of the total
online classifieds
ONLINE CLASSIFIEDS : SHARE OF DIFFERENT SEGMENTS
14%
Online
Recruitment
Online
Matrimonial
23%
63%
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Online Real
estate and auto
classifieds
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ONLINE TRAVEL
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Airline passenger traffic rose rapidly from 59.3 million in FY05 to 162.3
million in FY12
INDIAS AIR PASSENGER TRAFFIC
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The online travel market grew rapidly at a CAGR of 51.8% from US$1.5 billion in
2007 to US$12 billion in 2012.
ONLINE TRAVEL MARKET SIZE
12.0
2012
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KEY SERVICES
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Ticketing is the big brother of the online travel market due to its
standardized nature
SHARE OF DIFFERENT SERVICES BY VALUE
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Though online railway ticketing has high volume, its value share is low due to
low average price of the tickets.
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Customer experience
While the customer experience provided by airlines is standardized and
lasts around two to three hours, engagements with hotel customers are of a
longer duration and can stretch to days.
OTAs need to ensure that they deliver on the promises made to customers.
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Authenticity of information
OTAs need to ensure that hotels provide accurate information on
services offered and tariffs charged.
To address customers concerns about the validity of information
provided by hotels, OTAs could consider performing regular audits of
their hotel partners.
User-generated content may also help alleviate such concerns.
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Grievance redressal
OTAs should focus on providing call center services to customers
seeking information and grievance redressal.
Since customer experience is a prime focus area for all e-Commerce
companies, OTAs need to invest in training customer care executives
to ensure an enhanced experience for customers.
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