Flipkart: “the Amazon of India”

Flipkart: “The Amazon of India”

Background, Overview and Main Question:

Flipkart is one of India’s largest e-commerce platforms created by two brothers, Sachin and Binny Bansal. The market was ripe for Flipkart to play in as digital and e-commerce penetration has been increasing throughout the years. Despite this, India’s retail industry has always been fragmented and unorganized and Flipkart’s product mix does embody some characteristics of that with selling mostly unbranded products.

Currently, the e-tailing market in India is very competitive with Flipkart’s main competitors being Snapdeal and Amazon India. Nonetheless, Flipkart was able to successfully capture 43% of the market but as Table 1 shows, competitor, Snapdeal, does have almost 5 times the amount of sellers than Flipkart. The e-tailing industry competed on price with each trying to offer the consumer better value for their money to capture this lucrative market. As Exhibit 1 shows, the E-tailing market is to increased by 400% by year 2020.

However, Flipkart takes an interesting approach to differentiation and positioning. They aimed to differentiate through service by offering the best customer service possible and to “never cheat the customer.” Flipkart cleverly saw customer’s pain points and aimed to fixed them such as the cash on delivery(COD) to alleviate lack of trust in consumers with online payment methods.

As Flipkart aims to grow in this rapidly accelerating yet competitive market, they are starting to consider a marketplace model with more sellers with a more and more diverse product mix because they recognized the high margin opportunity there. However, Flipkart still adhered to their mission of providing the best services as vendors who consistently sold bad products were terminated from the platform, protecting the customers. Despite efforts to expand, profitability was still in the question as many Indian e-tailers are experiencing negative margins due to deep discounts. The question presented for Flipkart today is really can their marketplace model eventually generate sustainable profits for them and still allow them to differentiate based on service or will this model compromise the sole value proposition that Flipkart holds of providing the best service to the customers?

Strategic options for consideration:

Limit product mix and focus on customer service/experience:

One of the strategic option for Flipkart is to scale back their product mix and focus on the customer service/experience. According to Exhibit 2, the majority of E-tailing sales come from 2 categories: mobile/mobile phone accessories and apparel & personal items. Rather than acquiring so many companies from all areas as shown in Exhibit 4, Flipkart should be strategic and only acquire meaningful opportunities such as Myntra, the fashion e-commerce platform. This will allow them to maintain a better focus on their true value proposition which is to focus on customer service and the experience. By developing this value proposition it can allow them to potentially differentiate and come out of the price war and actually maintain profitable margins. Profitable margins will also allow them to invest more into shipping, processing and IT infrastructure to better the customer experience further.

Consider both an inventory and marketplace model:

Flipkart was considering a strict marketplace model to eliminate a lot of the downsides of an inventory model. The marketplace model allows them to not have to hold inventory and be only responsible for some of the processing. However, it might be worthwhile to keep a portion of the inventory model to show that Flipkart’s own inventory offers scam-free and high quality products to provide a better customer experience with the brand. Margins can potentially be improved because full revenues would go toward Flipkart rather than just a percentage of what the sellers receive.

Divert advertising money to invest in the infrastructure:

Another strategic option would be to divert investments in advertising into bettering the IT infrastructure and shipping/processing operations to maintain their value proposition of delivering the best to the customer. As the marketplace model helps Flipkart grow and scale, their IT infrastructure and distribution infrastructure were not adequately ready to be able to sustain that growth. Insight from a Google report stated that 62% of people who shopped online had a dissatisfied experience. This, again, allows Flipkart a huge competitive advantage if they are able to relieve and resolve those issues through excellent delivery and service, yet they are expanding too fast for their internal infrastructure to keep up with which actually led to negative results. As the original exhibit A shows below, Flipkart was slowly losing market share to retail giant Amazon.