Thursday, February 27, 2014

Marketing in Practice : The Online Marketplace Conundrum

The blistering growth of e-commerce in India (estimated to be around a size of $ 1.6 billion) has thrown up a Pandora's box of problems for marketers. The channel conflict has become intense between the traditional brick and mortar channel members and the online market place. The conflict is real and brands are caught in between the fight for the customer's wallet. 

The issue has come to the forefront  with brands like Toshiba, Lenovo and Cannon publishing advisory to customers on purchasing their brands from online retailers. ( read news here : Lenovo, Cannon). The basic issue between the online retailers and the traditional channel members is the predatory pricing adopted by the online retailers. Traditional retailers with their huge overheads and investments are not able to match the pricing of the online retailers.
The issue has become more complicated with large online retailers like Flipkart, Snapdeal adopting the 'market place' model . The eCommerce market has two models- Inventory model where the online retailer owns and controls the inventory and the market place model where the online retailer acts as the platform which connects the consumers and the retailers. 
In India, the trend is that many major players like Flipkart, Snapdeal etc have moved to the market place model. So these big online brands using technology as the enabler connects the customers and retailer partners and ensures seamless transactions between them. 

Online retailers like Flipkart and Snapdeal are able to patronize large number of retailers to its market place thus offering a huge spread of categories and brands to the customers. The online market place is a Two-Sided market where the success of the online retailer lies in his ability to increase the number of partner retailers and also the number of shoppers to the site.
Because there are large number of retailers in the online market place, the pricing becomes predatory and huge discounts can be offered to the shoppers. This has proved to be the point of contention. It was impossible for traditional channel partners to match the price cuts offered by the market place. With increasing popularity and adoption of e-commerce in India, its normal for the traditional channel members to cry foul.

To pacify the traditional channels brands has been adopting major initiatives like
  • offering additional services like additional warranty on products purchased through traditional channels.
  • Policy on uniform discounting across channels. 
  • Issuing advisory to consumers on benefits of purchasing through authorized retailers.
  • Issuing certification to authorized retailers who agrees to abide by common rules.
  • Advisory against un-authorized retailers. 
However in many cases, consumers overlook the advisory and take the risk of purchasing from unauthorized retailers. The price takes the front seat in comparison with the warranty offers. 
Experts opine that these issues will be sorted out but will take time. Brands are now increasingly asked to provide clear differentiation to traditional retailers so that their business is not suffered . It has to be noted that traditional retailers offer many valuable services to consumers in terms of information , product display etc. Consumers being smart avail these services at the traditional retailers and make the final purchase at the online retailers.