Pain Points of Indian eCommerce

Pain Points of Indian eCommerce

India is on the verge of an Internet boom and is projected to have between 330 million to 370 million internet users by 2015. That would give India the second largest base of internet users in the world behind China. The explosive growth in internet usage has more recently led to a corresponding growth in online business and eCommerce. This growth presents both great opportunities as well as some unique challenges.


eCommerce in India can be broadly divided into the Business-to-Business (B2B) and the Business-to-consumer (B2C) segments. In this post we will be focusing on the trends, opportunities and challenges in the B2C segment.

Business to Consumer (B2C) eCommerce market in India is set to grow at the fastest rate within the Asia-Pacific region at a CAGR of 57% by 2015. So far about 75-80% of all eCommerce transactions in India are travel related, comprising mainly of online booking of airline tickets, railway tickets and hotel bookings. The biggest players in the travel category are, and the Indian Railways’ IRCTC website for railway bookings.

Non-travel related online commerce comprises 20-25% of the B2C eCommerce market and includes:

  • e-tailing or online sales of durable goods
  • Financial services such as insurance and online bill payment
  • Online classified, matrimonial, dating and job websites as well as marketplaces
  • Digital downloads including music, eBooks and paid content subscriptions

Of these e-tailing is the largest and fastest growing segment. The most popular categories here are similar to those in other markets and include consumer electronics, computer hardware, mobile phones, books and apparel. This list is rapidly expanding to include new categories such as appliances, furniture, pet care, organic foods, health care, cosmetics and beauty products. In many ways, India’s e-commerce market is at the same stage of growth as the US was at in the late nineties and China was at about 6 to 7 years ago.


In 2011 the non-travel eCommerce market size was about $600 million and it is estimated to touch $9 billion in 2016 and $70 billion by 2020 – with an impressive CAGR of 61%. By all accounts it appears that the growth of eCommerce in India is at an inflection point. There are multiple drivers to this growth including :

  • Increasing broadband Internet (growing at 20% MoM) and 3G penetration.
  • Rising standards of living and a burgeoning, upwardly mobile middle class with high disposable incomes.
  • Availability of much wider product range (including long tail and Direct Imports) compared to what is available at brick and mortar retailers.
  • Busy lifestyles, urban traffic congestion and lack of time for physical shopping
  • Lower prices compared to brick and mortar retail, driven by disintermediation and reduced inventory and real estate costs.


The opportunity to tap into this exploding new market of online shoppers has predictably led to a gold-rush among Indian entrepreneurs and venture capitalists. It is no surprise therefore that more than $700 million was invested in 2012 into Indian eCommerce companies. Of the 379 technology product start-ups launched as of October 2012, 193 were e-commerce companies. Flipkart which was founded in 2007 has quickly emerged as a leader in this space and received an investment of more than $1,000 million in venture capital between 2012 and 2014 – one of the largest to date in any Indian internet company. It reported $100 million in eCommerce revenues last year and is targeting $1 billion in revenues by 2015. the world’s leading e-commerce site also entered the Indian market last year with the launch of – a product and price comparison website that aggregates information from different eCommerce websites. Amazon is following a different model by bringing sellers and buyers together and not directly handling the transaction. Other established players include eBay which also offers a marketplace for buyers and sellers.

As with any young and emerging market, there is a lot of fragmentation. In addition to e-tailers such as Flipkart, and marketplace sites such as Ebay, Junglee and OLX, there are also niche websites such as Caratlane (jewelry), online stores of established brick-and-mortar companies such as Shoppers Stop, and deal aggregator sites such as Snapdeal and Crazeal.

eCommerce Challenges

In spite of the huge opportunity due to the size and growth of the market, eCommerce in India has its own set of unique challenges. Whereas the Indian e-Commerce story has witnessed a lot of action in the last so many years with sites like FlipkartBookMyShow, MakeMyTrip and redBus becoming household names, the number is nowhere close to the number of businesses that have failed. Running an ecommerce business in India is not as easy as it appears.

eCommerce in most mature markets such as the USA works because of certain efficiencies in payment and delivery mechanisms which are missing or underdeveloped in India. The main pain points of Indian eCommerce industry are enumerated under:

  1. Low internet penetration.
    Internet penetration in India is still a small fraction of what you would find in several western countries. On top of that, the quality of connectivity is poor in several regions. But both these problems are fast disappearing. The day is not far when connectivity issues would not feature in a list of challenges to eCommerce in India.
  2. Lack of trust in online vendors.
    Establishing trust in the consumer is critical for the future of B2C eCommerce. The problem of trust online is based in the realities of the eCommerce retail experience, but has also been inflamed by reports of consumer fraud and consumer identity theft based in online transactions. Online shoppers are also reluctant to participate in most online transactions due to credit card security issues and privacy issues.Market research indicates that customer service is the key to building customer loyalty. 90% of online shoppers consider satisfactory customer service to be critical when choosing an eCommerce merchant. Exceptional customer service increases customer trust, which encourages repeat purchases and word-of-mouth recommendations. eCommerce companies also need to do their bit to educate people about human-computer interface (HCI), secure payment systems, and reduce refund time.
  3. Mediocre Payment Gateways.
    Using a credit or debit card is not easy in our country; there are several factors like OTP (one-time password) and double authentication method that make the use of a card a cumbersome process. The challenge for the e commerce companies is to make it smooth. Until this is resolved, cash-on-delivery would remain the most primary method of payment.Indian payment gateways have an unusually high failure rate by global standards. eCommerce firms should make their payment gateways more convenient keeping in mind the Reserve Bank of India (RBI) guidelines and build trust with the customers. eCommerce companies using Indian payment gateways are losing out on business, as several customers do not reattempt payment after a transaction fails.
  4. cash on delivery
    Cash on Delivery is Preferred Mode of Payment.
    Low credit card penetration and low trust in online transactions has led to cash on delivery being the preferred payment option in India. Eight out of ten online transactions are conducted on a COD basis. However, as per one estimate 45% of all COD orders are rejected at the point of delivery by the customer. This is clearly expensive and not a very sustainable business model. The problem is compounded by the fact that most e-tailers also offer free shipping to acquire and retain customers. Unlike electronic payments, manual cash collection is laborious, risky, and expensive.
  5. High Return Rate.
    eCommerce in India has many first time buyers. This means that they have not yet made up their mind about what to expect from eCommerce websites. As a result, buyers sometimes fall prey to hard sell. But by the time the product is delivered, they demonstrate remorse and return the goods. Though consumer remorse is a global problem, it is all the more prevalent in a country like India, where much of the growth comes from new buyers.
  6. Unreliable Warranties.
    Even as online retail sales continue to shoot up with the e-commerce industry expected to touch Rs.216 billion ($3.5 billion) in the current fiscal, the sector has recently come under fire with both manufacturers and consumers questioning the reliability of warranties for online purchases and the consequences of this.Consumer electronics manufacturers like Sony, LG, HP, Nikon, Lenovo, Dell, etc. have on their respective websites said they cannot vouch for the genuineness of products sold on these e-marketplaces and hence the consumer’s right to warranty coverage and support on those products could be impacted.


    International brands have time and again declared that some of the products, if purchased online, are not eligible for a warranty. However, the third party online seller issues a warranty in some instances. For instance, while Tissot issues a two-year international warranty in the name of Tissot S.A, some of the sellers on popular e-commerce websites post it as “one-year Tissot India warranty”. Thus the warranty is not honored by the manufacturer and the buyer has to be satisfied with only a seller’s warranty instead of an original manufacturer’s warranty.

    In other parts of the world, there are statutory warranties in place, which require all manufacturer’s to provide a minimum of service on any legally purchased product. In India, though, online is being equated with the grey market, and instead of increasing customer convenience, it’s another thing we need to perform due diligence over, before making a purchase. Despite a plethora of complaints post-purchases online on warranty issues, India’s laws fail to provide any respite.

  7. Logistics and Delivery.
    Hassle-free eCommerce is possible only when the logistics and supply chain doesn’t pose a problem. In India, most of the online customers lack trust in eCommerce transactions.
    Deficiency in Delivery
    Dealing with the actual logistics and delivery of goods ordered online is both inefficient and unreliable due to poor roads, traffic congestion and an overall weak transportation infrastructure coupled with India’s vast size and non standardized postal addresses. If you place an online order in India, you will quite likely get a call from the logistics company to ask you about your exact location. Clearly your address is not enough. This is because there is little standardization in the way postal addresses are written. Last mile issues add to eCommerce logistics problems. In fact much of the investment into e-commerce companies is going into logistics. Many e-tailers are setting up their own warehouses and delivery centers to extend their reach and streamline operations.


    With the growth in eCommerce and entry of new companies in the logistics space, things are beginning to look encouraging.

  8. High Cost of Customer Acquisition.
    To get people to come on an eCommerce site and make a purchase involves heavy cost due to advertising and marketing. The long-term prospects for eCommerce companies are so exciting that some investors are willing to spend irrationally high amounts of money to acquire market share today.Most e-tailers are losing money and are being propped up with investor capital. The largest player Flipkart is yet to turn a profit. All of this has inevitably led to a high mortality rate and consolidation in the segment. Of the 193 eCommerce companies that were launched in 2012, almost half or 87 have ceased to exist, having either been acquired or shut down as investors cut their losses and trimmed their portfolios.
  9. Razor Thin Margins
    Another factor that is making it harder for eCommerce companies to survive is razor thin gross margins due to deep discounts and intense price competition. In fact many items are sold at a loss to attract customers. Profitability is being ignored at the cost of achieving scale.
  10. Finding a Niche.
    A niche is something that a eCommerce startups can take up but finding a large enough market willing to buy online is going to be a formidable challenge. With low funds, these marketers are unable to find people who are willing to make e-commerce transactions for specific products and/or services.
  11. Customer Service.
    Customer service is something that is overlooked in the Indian context. However, in this dense eCommerce market, quality customer support is going to be a big differentiator. Reassuring customers of a situation or telling them the status of a process is sometimes all that is needed to keep the customer from hitting the panic button and taking to public media.Getting customer support oriented resources in India will be a challenge that a startup could face.

India’s eCommerce industry has all the potential to grow by leaps and bounds. The only thing required is utmost seriousness in running an online business. Entrepreneurs must ensure to build up portals that are up to the mark. A zeal for propagating the brand and services must be imbibed into potential customers. Issues concerning security and transaction frauds must also be taken into consideration. Proper measures must be taken in order to build up trust into the hearts of buyers who fear transactional frauds and tend to move away from making purchases using the internet. By following a set approach, Indian marketers can definitely attain new heights of success. Comprehensive analysis of online retail portals in India reflects a better future for the Indian eCommerce industry.

References: India Advisory Board

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