Pay less, buy more

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April 11th, 2012 Rrishi Raote

What was the first thing you ever bought online? An IRCTC Indian Railways ticket? Domestic flight ticket? Movie ticket? A couple of years later did you, like the rest of us, graduate to books, CDs, DVDs, cellphones and computer peripherals? And what was your most recent online purchase? Pen? Streaming movie? Vitamin pills? Face cream? Packet of biscuits? T-shirt? Toothbrush? Shoes?

You see the change. Once upon a time Indians bought only “virtual” products like movie and travel tickets online. Anything real, and we preferred to go see it in the real world, to sample it with our own senses before paying for it. Now, however, there is a boom in ecommerce, with sales rising very fast, to about Rs 2,000 crore last year from virtually nothing five years ago. Yes, rising incomes and better broadband penetration help but so, most promisingly, do Net-enabled smart phones.

There are dozens of new companies and they are making lots of money (and raising lots of venture capital) selling things we Indians only a year ago wouldn’t have dreamt of buying online: clothes, for example, and shoes. How can you buy such things without trying them on? But now we do. We also have begun to buy soaps and toothpastes, sodas and cartons of milk — everything, in fact, on the typical household grocery list, except fresh vegetables and fruit which are difficult to transport and store.

To keep us consumers supplied with these everyday things, ecommerce companies are pioneering new ways of doing business, learning to focus fiercely on the back end, from efficient warehousing and shipping to convenient cash-on-delivery. Most of these companies are inserting themselves into the supply chain between manufacturer and consumer, typically elbowing aside the traditional wholesalers, transporters and retailers who shift goods out into the market. In this way they try to capture the maximum share of the purchase price. This allows them to offer discounts to tempt buyers.

But some companies are looking beyond merely a share of the purchase price. Ecommerce volumes may be rising, but they are still quite small, and retail margins are just a few percentage points — so the money is not yet cascading in. What is the solution? Well, if you’re not selling much of the product, sell information.

This information can be incredibly valuable. Take for example a shopper who is browsing for bath soap. If later he also looks on the same site for a children’s school bag — well, this means he is a householder, time to hit him with offers for the full range of household products.

There’s more. Brands usually know in very good detail how many items of what product sold in what outlet in what location. What they do not know is anything about specific customers. An ecommerce site can track its customers browsing habits and the path they take through the site in complete detail. So the ecommerce company can tell a brand, say, that a certain number of women of a certain age in a certain locality bought a certain hair colour three months ago but have not bought it since.

And the site can find ways to cluster products or present deals that maximise the chance of the consumer picking them up. Vijay Singh, co-founder of grocery ecommerce startup AaramShop.com — which sells through kirana stores and therefore earns nothing on sales transactions, and pays nothing for warehousing, but makes money on “analytics” — told me, for example, that honey sells when grouped with milk, that when a customer browses one hair colour brand then another hair colour brand might want its ad seen on the same page. And so on.

Please don’t imagine that you are anonymous online. Every seeing or buying decision, every link you follow, down to how long you spend on an item, all contribute to an electronic portrait that is more detailed than you could imagine — one that allows companies to know your habits better than you do.

Since electronic privacy is not an issue in India — who ever makes a fuss about it? — this personal information is available for sale and use. This is an important issue that we are simply not bothering about. It’s already too late to claw back lost ground.

However, more immediately, expect the clever analytics of ecommerce to radically reshape the way real-world business does, well, business. Department stores may find it harder and harder to compete with and match the range of ecommerce sites, but they will fight back with lessons learnt from ecommerce — such as, at the very simplest level, putting the honey next to the milk. Genuine freedom of consumer choice, which has, counterintuitively, not grown but shrunk in recent years, is going.

You will no longer be able to choose whether or not to buy, only what you will buy — and the marketers are working to eliminate even that unpredictability. On the one hand this is fascinating and creative work. On the other, it is chilling.

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2 Responses to “Pay less, buy more”

  1. Rrishi Says:

    Hi Vikram! Your CRM prof lady already told you all of this? Sigh. This journalist is sadly behind the curve.

  2. Vikram Johri Says:

    Rrishi you would make my CRM prof proud. She taught us what you summarised here over 2 rather informative months.

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