Is an E-Commerce Site Dead on Arrival ?
E -commerce website Cost of Acquisition Unit Economics are so poor, it does not matter ! You have to discount and make a loss on every new customer acquired
If E-commerce sites are ineffective ,is Mobile App the way to go for E-commerce ?
Why would India’s biggest E- commerce sites Kill the Golden Goose that got them the Unicorn $ 1 Billion Valuation ? These are the smartest guys in business .They have data analytics and crunchers and don’t take whimsical decisions except on valuation. The answer possibly lies in the abysmal 0.1% rate at which most e-commerce site convert. This means any E-commerce site without venture money is Dead on Arrival.
Unit E-commerce Economics at 0.1% Conversion
- Average Cost per Click Rs 5/-
- 0.1% Conversion
- 5 Transactions in 1000 Clicks
- Click Spend Rs 5000
- Cost per transaction Rs 1000/-
Now if you are selling Electronics ,you will make a 5% Margin and will need to sell a rs 30,000 product to cover your cost , profit .No E-commerce site is even close to that average .They will have the same unit cost from a Rs 200/- item to Rs 30000/- .Even if you take shipping cost of Rs 60/- on the Rs 200 /- item .You still have a substantial loss
So lets give him an Extra 15% discount to download and buy from an app
At least I have him locked in .I can now give him a Price Match Guarantee ,so he does not feel the need to shop around . Why reward Google ? Bottom Line I acquired this customer for Rs 1000/- .Now with the App in place, my team has to entice him to buy 5/10 times a year and I am home. Never pay to market to him again. Look for new users
This thought was sparked by an intresting first hand account I read in Inside IIM.com forum .I reproduce the relevant extract from an opinion by Deepanjan Datta .By his own admission Deepanjan has had a ring side view of the action
I have worked in the e-commerce industry on the sell side for the last one and half years – and so have had a ring-side view of the situation to some extent. I work for a company that provides customer engagement to almost all the major players in the Indian e-commerce market – be it Flipkart, Snapdeal, Jabong or even a marketplace like Ebay. I also have to deal with owners of e-commerce ventures which are much smaller on a daily basis. So I can speak for both sides of the spectrum.
I will conclude by going into a few nitty-gritties of the online shopping experience in India as I believe that is very pertinent to the discussion at hand – Most e-commerce companies, even the biggest ones, lose a vast majority of their customers within the FIRST minute. They haven’t even been shown product discovery pages, even lesser cart pages and only about 0.1% people have finished a complete transaction (these were shoppers with laser sharp focus anyway – they knew exactly what they were looking for and they didn’t look around much – searched for it, bought it and went their way). Most transactions are completed between the 5th to the 8th minutes that a shopper has spent on a website. The point I am raising is, it is difficult, with the present customer experience in place and considering the present industry wide bounce rate, for MOST e-commerce ventures to keep shoppers on their site for that long. Also, India is a country where people are averse, in general to doing online transactions – we are a cash-heavy economy (not so much with the resources; but when it comes to spending anyway : ) ). The major mode for e-commerce in India remains COD (cash on delivery) with 80% of all transactions being concluded this way. It was an innovation when it burst onto the market, but over time, it has become somewhat of a liability, as, combined with logistical bottlenecks on the delivery side, it results in the turn around time of transactions and closures of online purchases to increase manifolds as opposed to a complete online payment.