The Indian Consumer & the E-Commerce Play

With the advent of e-commerce platforms, the buying behavior of Indian consumer has seen a shift from offline to online to handheld. The discounts and freebies being offered by the e-com guys has surely lured the Indian consumer away from the brick & mortar stores. But what is yet to be seen is for how long these players can sustain the discounting, and continue to splurge on multi-million ad campaigns.

But let’s first understand the pricing mechanism for goods.

The parties involved:

• Manufacturer
• Distributor
• Wholesaler
• Retailer
• Consumer

So, a product is manufactured by a manufacturer at a price, and then the distributor, wholesaler and retailer, each add their respective margins to the price of the product. Add to it the advertising cost that each of these guys incur, which is also passed on to the consumer. So a product which was manufactured at say INR 100/- a piece, sells at around INR 300/- to INR 400/- a piece, or even higher, by the time it reaches the consumer.

Now, in the current scenario, the e-commerce platforms want to create a platform where the manufacturers can directly sell to the end-consumer, thereby reducing the “MIDDLEMEN” and offering the consumer a cost-benefit. Hence, the revised grid becomes as below:

• Manufacturer
• E-Commerce Platforms
  • Distributor
  • Wholesaler
  • Retailer
• Consumer

But this scenario becomes possible only when the manufacturers start listing and selling products directly on the e-com platforms, unlike the current scenario, where existing retailers are selling on e-commerce platforms to add another selling window for themselves. So where does the price benefit comes from? Refer the ToI article some time back, which says the total spending on discounting and marketing was close to INR 6,000 Crore (a billion USD) during the last Diwali season, to lure the consumer. (Ref:- Online purchases by Indians are being subsidized by Wall Street - https://timesofindia.indiatimes.com/tech/tech-news/Online-purchases-by-Indians-are-being-subsidized-by-Wall-Street/articleshow/45354072.cms )

Now, a few questions that come to mind:

• Is this sustainable?
• Will the Indian consumer stick to these websites?
• Will the platforms continue to offer discounts and bleed or will they be profitable?

Having observed the Indian consumer over the last 25 years, and having been a consumer myself for the last 20, I tend to disagree that the Indian consumer’s “MINDSET” has really changed over the last 25 years. I remember my Grand-Mother, and then my Mother, going to buy vegetables. Invariably, they will choose the vendor who will give them potato at a rupee less per KG, or offer something free. When me and my friends were in college, around 15 years back, with the malls and brands phenomenon catching up, we wanted to wear branded jeans, but could not afford one. So we would frequent the Monastery market near ISBT, New Delhi, which would sell branded jeans for 300 bucks. Now, we see people in malls trying and seeing products, and then scanning the bar-codes, or item number. They then go back home, log on to the internet, and search for the cheapest option available.

So, over the last 25 years, there hasn’t been a change in the mindset. Only the “DESTINATION” has changed. India has always been and continues to be a price sensitive market. The question remains – Will they shift from cost to convenience? The e-commerce fraternity is betting that they will.