eCommerce Investors, Look Out! Plug Revenue Leakages Before It’s Too Late: Part 1

We were at John’s Optical outlet yesterday.  I was a reluctant companion for a friend who wanted to select frames for her husband.  Her brother-in-law Shyam had recommended this outlet as the owner, John, was his class-mate and close friend. Moreover Shyam had always had a good experience with this shop when he needed spectacles himself.

While we waited for my friend’s husband to join us, I was casually looking around the store. I tried on some of the numerous designer frames showcased and looked at myself in the mirror, more from the aesthetics point of view. John and his team did not object and allowed me to try the frames at my own pace. Though I’ve never worn glasses, I’ve recently been having some difficulty with tiny font and find myself peering at medicine bottle instructions. When John offered to check my eyesight, and said it was free, I agreed. After the test he handed me my prescription and lenses that would work.  That was that.  I told him I would recheck this with my local doctor before taking any decision. Soon my friend’s husband arrived and we got engrossed in selecting frames. But with the background of this goodwill and relationship, I suddenly, as you must have guessed by now, trusted John the Optometrist and decided to place my order.

Instead of just one customer Shyam, John had now won over my friend, her husband and me.  And we aren’t even from that part of town. This is the power of advocacy and relationships. Let’s see what this means in the online world.

A July 2015 article (www.business-standard.com/article/companies/e-commerce-investors-press-the-pause-button-115071800014_1.html) had the rather alarming headline ‘eCommerce investors press the pause button’.

Another article published in a leading business daily at the end of October 2015 quoted the CFO of a leading eCommerce company as saying that “The Gross Merchandise Value (GMV) concept makes no sense and is used by ecommerce players like Flipkart and Amazon to justify valuations”

http://economictimes.indiatimes.com/industry/services/retail/gmv-concept-makes-no-sense-is-used-by-ecommerce-players-like-flipkart-amazon-to-justify-valuations-jabongs-cfo/articleshow/49559369.cms

These news items reflect the growing concerns about eCommerce operations and questions about what is the net realization after deducting returns, cancellations and discounts. The profits after accounting for all these drop significantly.

How does one build a truly sustainable, profitable company or how do investors help their investee companies become profitable? Let’s look at the key stages:

  • eCommerce companies needs to mine the assets they have created – customers. To grow beyond this initial euphoric phase – there need to be ways to get loyalty and advocacy.
  • Advocacy includes groups of friends, neighbours, relations and family. Family is the immediate nearest circle. One of the ways is to use the power of ‘House-holding’ to engage with customers. Profiling a household goes beyond looking at individual customers, yields further insights, and can be used to build deeper relationships.
  • However, we then come across challenges, as the data provided by a customer for online purchase is very limited – largely names and addresses. Transaction information is richer in comparison as details of product purchased, mode of delivery, date and discounts are available.
  • The data may be quite patchy as customers don’t have the time, energy or inclination to enter details – ‘what if the discount disappears by then?’

How then does one encourage loyalty?

  • Identify groups, and we can start with the most basic of them -  households
  • Technology can be used to identify households and their collective interests, purchases, seasonality etc.
  • Understand Recency, Frequency, Monetary etc, all the golden-era marketing principles can be applied here
  • Understand group dynamics, propensity to spend – India is still a land of households – the concept will take time to go away

The Loyalty they are able to create among their customers is potentially the most significant indication of the ability of eCommerce companies of becoming from good to great to formidable.

An organization that builds emotional connect with households is sure to sustain loyalty more than with an individual. There is a lot more that can be done to profile information and enrich this. This is one of the best-known secrets for scaling. In the next article we will discuss the power of Locational Analytics.

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