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Retailing in India, Euromonitor, July 2013 Amazon now in India, The Hindu, July 2013. Online at: http://bit.ly/13lEpDD 3 Flipkart launches its Marketplace with 50 sellers onboard, YourStory.in, Apr 2013. Online at: http://bit.ly/IJZhiy 4 Snapdeal CEO says inventory model is dead, looking for deals. Online at: http://bit.ly/12MNOqn 5 Flipkart may launch online marketplace on its website, Business Standard, Oct 12. Online at: http://bit.ly/1bg3eBp 6 Flipkart raises $160 million in latest funding drive, Reuters, Oct 2013. Online at: http://reut.rs/Ir6fbL
With a target to reach US $1 bn in sales by 2015, Flipkart is not setting itself any easy goals to achieve, though the sector of Online Retail is projected to grow at a healthy rate in the years to come, riding on a variety of enabling factors like increased internet connectivity, adoption of technology for the supply chain and increasing adoption of online payment methods.
E-Commerce Explained
The generic term E-Commerce is used for describing the sale and purchase of items via an online service, usually a website or portal. There are three primary modes of conducting these transactions: 1. Customer to Customer C2C online retail is enabled by services like Online Classifieds, which allow users to post and share information regarding items on sale. The category is still in a nascent stage in India and a few portals like eBay.in have existed since some time, enjoying moderate success. 2. Business to Customer Online travel, online retail, digital downloads and financial services are examples of B2C E-Commerce business categories. B2C is by far the biggest category of E-Commerce in India. Though online travel is the biggest among these in India (at about 3.5 times the size of online retail in 2012), online retail is set to catch up and account for the same total revenues as online travel by 20157. 3. Business to Business B2B retail as a category is set to benefit from the introduction of several online B2B marketplaces, like Flipkarts, in the years to come. As of now, most users of B2B retail in India are Micro, Small & Medium Enterprises (MSMEs). Every E-Commerce transaction is facilitated by the three flows; namely product flow, information flow and monetary flow. The relationship is represented in a simplified manner below. Supplier Airline/Railways Manufacturer Companies offering jobs Individuals
E-Commerce Player
Logistics Providers
Call Centres
Financial Intermediaries
Network Services
Enabling Services
Core Layer
In brief, the movement of goods from suppliers to consumers via e-Commerce portals and logistics firms constitutes the product flow. Information starts from consumers, and then moves through the e-Commerce portal to the supplier(s) (which might be a third-party firm), constituting information flow. Payments made by consumers reach e-Commerce portals and suppliers through financial intermediaries, constituting the monetary flow.
Logistics Firm
Products shipped from Warehouse
Consumer
Payment Gateway
Customer directed here
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2. Marketplace Model: The website acts as a medium to connect buyers and sellers (like a shopping mall), and does not maintain an inventory of the goods sold on the website. Revenue is through charging a commission on every sale, the rate for which varies from product to product and is decided by the vendors and the e-Commerce portal.
Rebirth of e-Commerce in India, 2012. Ernst & Young Rebirth of e-Commerce in India, 2012. Ernst & Young
Logistics Firm
Merchant ships to customer through Logistics firms
Consumer
Merchant
Order details sent to Merchant
Payment Gateway
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Both models have managed to co-exist, with some firms preferring the Marketplace and others sticking to holding their own Inventory. A point to note about the Inventory Model is that not all the goods for sale on the website are stocked in warehouses. The percentage of the goods actually held in the inventory is generally about 40% to 80%. The benefits and drawbacks of the two models are discussed below.
Marketplace Model
Schedules and Commitments might be tougher to control since suppliers and merchants control the delivery pace and quality Margins of the merchants are not known to ECommerce firms and they need to employ a variety of techniques to calculate commission %ages Innovative techniques are at the mercy of merchants and E-Commerce firms need to rely on them for any marketing promotion Again, the post-purchase experience is up to the final merchants, whose efficacy is not under the ECommerce portals control
Investment needed in warehousing and logistics. Considerable fixed costs needed to set up operations. Payment settlements schedules vary depending on which product is sourced, from whom, etc. Managing relations with different suppliers is essential In case of a fragmented supply side, it can be tough to maintain a diverse inventory which helps cater to the demands of everyone
Little or none of such investment is needed in the Marketplace model. All settlements between vendors and E-Commerce firm occur after the product has already been sold, so schedules are not something to worry much about A fragmented supply side can be managed well by delegating the work to several merchants, who can be held responsible for niche categories of products
Table 1: Pros and Cons of the Marketplace model and the Inventory-Holding Model
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Snapdeal CEO says inventory model is dead, looking for deals. Live Mint, Apr 13. Online at: http://bit.ly/1eUGcoq TC Debate: Which e-com format marketplace or inventory-ledwill lead to profitability first?, TechCircle.in, Nov 13. Online at: http://bit.ly/1eNRtq7 13 Are we ready to adopt the marketplace model?, Exchange4Media.com, May 13. Online at: http://bit.ly/1ixX89l