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Learn Amazon’s secret moves in a tough battle with local competitors Flipkart and Snapdeal

Amazon CEO Jeff Bezos in Bangalore, India (Image credit: Manjunath Kiran AFP for Getty Images)

The world’s second most populous country, India, holds a great deal of untapped potential for online marketplaces. In the first three quarters of 2015 alone, US$2.9 billion in funding was invested into India’s online e-commerce marketplaces.

In a March 2016 issue focusing on e-commerce in India, The Economist reported that “every second, three more Indians experience the internet for the first time.” Currently, the most popular e-commerce platforms in India are Flipkart (37 per cent market share in terms of volume of shipments) and Snapdeal (14 per cent), which were founded by locals and funded by tech titans the likes of Alibaba.

The country’s e-commerce firms are racing to reach the country’s growing number of Internet users and the biggest population of Millennials. With around 200 million people online, India is the third-largest online market with the lowest penetration rate (19 per cent) among the top 20 countries in Internet usage. It is projected to be “a one-billion-person digital market” by 2030.

Even American e-commerce titan Amazon (21 per cent market share) wants a piece of the pie. Although Amazon is considered a late entrant, it reportedly has the highest customer loyalty scores among all major e-commerce firms in the country. For the time being, none of these firms’ operations in India have yet to turn a profit, but already, Flipkart was recently valued at US$11 billion and Snapdeal at US$6.5 billion.

Also Read: Is the party over for India’s e-commerce startups?

Amazon in India

It’s no secret that Jeff Bezos sees huge potential in India’s economy. Amazon pledged a total of US$2 billion of investment funds back in 2014, and now it plans to spend an additional US$3 billion. Bezos is careful not to repeat Amazon’s mistakes in China — the money is going into adapting Amazon to “the local model.”

Amazon has also been aggressively promoting its fashion category in India. In March, in collaboration with Fashion Design Council of India and Maybelline, Amazon held India Fashion Week (AIFW). With the theme “Modern India”, veteran local designers were invited to showcase their designs, and the event made headlines in major local news outlets.

Besides live streaming of fashion shows and chats with designers and bloggers, Amazon had prepared gift packages and promo codes for customers that shop on the company’s website. In order to make the campaign much larger in its reach and scope, Amazon also held a fun treasure hunt on the website and giveaways for customers who shared Amazon Fashion products on social media. Not surprisingly, Amazon is outspending its competitors on its marketing campaigns.

The Economist reported that “last year its sales were two-thirds the size of its losses.” However, for most e-commerce firms, the priority is growth. Fashion isn’t the only thing that the company spends on; it also has been aggressively promoting its groceries category.

Also Read: 4 global trends that Indian e-commerce sector should adopt

Reaching out at a hyperlocal level

Indian and foreign-owned online grocers that have emerged in the past few years are relying on partnerships with brick-and-mortar retailers instead of supplying their goods from a central warehouse.

In 2014, Delhi, Bangalore and Mumbai residents could order and pay for groceries on the Amazon portal, and then pick up what they ordered at a local kirana store. Similar to Amazon Fresh, Amazon.in, in partnership with mom-and-pop stores, has also started to offer grocery deliveries within two to four hours between 9am to 6pm. With these local partnerships formed, Amazon is enabling local businesses to flourish.

Other hyperlocal online marketplaces such as Bigbasket, Localbanya, Hoppr, Niffler, LookUp, Zopper, Crown It, and Near.in have also opened up channels for local shopkeepers to sell their goods and services, at the same time providing convenience to consumers.

Another change brought about by these hyperlocal marketplace startups is that they’re helping to connect rural areas to the online economy by spreading their own distribution networks throughout India. Amazon operates its own delivery service to reach customers’ doors in India, whereas in the US it’s reliant on Fedex, USPS, and UPS’s services. Already, complementary third-party logistics services such as Delhivery, Gojavas and eKart are popping up to support growth in India’s online marketplaces.

Online marketplaces are also major contributors to the development of financial infrastructure for e-commerce in India. Since most Indians don’t own credit and payment cards, Paytm provides digital wallets and loan programs for small businesses, such as those offered by Amazon India and Snapdeal. Flipkart, which was founded in 2007 by two software engineers who had worked at Amazon, pioneered a cash-on-delivery service, which Amazon also offers now.

Also Read: Indian e-commerce set for a good shakeout in 1-2 years: Mohandas Pai

Online marketplace regulation

Before, online marketplace operators had been using capital to gain a competitive edge over other online and offline retailers. Now, although 100 per cent foreign direct investment is allowed in online retail under the marketplace model, India’s governing bodies are making attempts to level the playing field between offline and online retailers.

As of March 29, online marketplace operators are no longer allowed to distort pricing and offer discounts, even through loyalty programmes or other promotional offers. Those rights will be reserved solely to the sellers, who will also bear the product or service guarantee. The government also put restrictions on the percentage of overall sales any single vendor can account for. Marketplace operators are still allowed to provide support services such as warehousing, logistics, order fulfilment, call centre and payment collection.

Looking at the big picture, it’s predicted that the new regulations will just be a minor damper in India’s e-commerce industry, especially for Amazon. There’s still much room to grow and a vast geographical landscape to operate in, as there are thousands of cities in India that could reap the benefits of online marketplace activities.

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Clarissa Santoso is a Marketing Communications Specialist at Arcadier, a SaaS company that powers next generation marketplace ideas. You can follow Arcadier on Twitter, Facebook, and LinkedIn for the latest insights on the Sharing Economy.

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