FlipKart- Company Analysis and strategic & tactical
recommendations
Introduction
FlipKart is one of the pioneers in the online retail
(eCommerce) sector in India. According to its filing at the registrar of the
companies, it had a sales of INR 1,345 crores in fiscal year 2012-13, which is
approximately equal to USD 217.4 million. This is an increase of 2.7 times the
revenue that it generated previous year. According to even the conservative
estimates, Flipakart is on its way to achieve its coveted goal of reaching USD
1 billion in revenue by the end of fiscal year 2015. Profitability, though is
still not in sight and Flipkart had a loss of INR 192 crores or USD 31 million
in the fiscal year 2012-13, which is substantially higher than the previous
fiscal year.
Company analysis and Competitive positioning
FlipKart has sailed ahead of other eCommerce players in
India and has been quick to latch on to new changes in the industry. It is one
of the pioneers in the recent changes that have shaped the industry 1) Cash on
delivery to gain customer confidence, 2) creating marketplace to lure small and
medium businesses (SMBs) and 3) backward integration to own the logistics of delivery
SWOT Analysis
Strengths
·
Industry has shown tremendous growth (49% from
2007 to 2011) and continues to grow at
high rate. According to a Deutsche Bank report, the industry would grow at a
CAGR of 10% to reach US$111 billion by 2020
·
FlipKart itself has grown very fast, increasing
its revenue 2.7 times in fiscal year 2012-13 compared to previous year
·
Has confidence of the investors with recent
investments of USD 200 million from a consortium of investors
·
Not heavily dependent on courier services, has developed delivery network
· Competent customer services and exception warehouse
delivery system
·
Variety of payment options, making it convenient
for customers to order
·
Strengthened CoD options through partnership
with Ekart
·
Features among the top 30 websites
·
Concentration on customer satisfaction,
logistics and distribution
·
Wallet (prepaid) feature is introduced to make
online shopping easy and increase customer’s switching cost
Weaknesses
·
It had losses of INR 192 crores or USD 31
million in the fiscal year 2012-13
·
CoD option is not as successful as anticipated
·
The size of business is still very small
compared to foreign counterparts. This will create problem if entry of foreign
players is allowed in the Indian market
·
It takes time to build confidence among the customers
in the internet business where feel of the goods and cash exchange has been a
norm in the market
·
Average transaction value is low as the
customers still prefer traditional stores for expensive purchases
Opportunities
·
M-commerce is the next development in the
related market to reach higher customer base
·
Increasing internet penetration and high-speed
mobile internet connection opens up interesting opportunities for expansion
·
Spending behavior of the new generation is
favorable
·
Demographic dividend of India can be tapped and younger
customers of the internet era can be accessed through social media advertisements
and branding
·
High interest is shown by the Venture
capitalist/private equity firms
·
Favorable regulations by government as the
foreign players are still not allowed. No Foreign Direct Investment (FDI) in
B2C eCommerce market, so, sheltered from foreign competition
Threats
·
Indian customers are taking time to get
comfortable with the concept of online payment
·
There is too much competition in every product
category by different set of players
·
Early starters in mCommerce can poach the
customers
·
100% FDI in B2B eCommerce market and pressure on
government to allow FDI in B2C market
·
Entry of Google in online e-books and movies
market
·
Competitors capturing alternative market through
innovative strategy (e.g. Buildbazar by Infibeam)
Competitive positioning
Score out of 10
|
Weighted score
|
||||||||
Parameters
|
Weightage
|
Traditional stores
|
FlipKart
|
Snapdeal
|
Infibeam
|
Traditional stores
|
FlipKart
|
Snapdeal
|
Infibeam
|
Competitive pricing
|
0.1
|
8
|
8
|
8
|
9
|
0.8
|
0.8
|
0.8
|
0.9
|
Quick Delivery
|
0.1
|
10
|
9
|
8
|
7
|
1
|
0.9
|
0.8
|
0.7
|
Safe payment
|
0.125
|
10
|
8
|
8
|
8
|
1.25
|
1
|
1
|
1
|
Payment options
|
0.1
|
3
|
8
|
8
|
8
|
0.3
|
0.8
|
0.8
|
0.8
|
Customer Service
|
0.125
|
7
|
9
|
7
|
7
|
0.875
|
1.125
|
0.875
|
0.875
|
Ease of replacement
|
0.075
|
6
|
7
|
7
|
7
|
o.6
|
0.7
|
0.7
|
0.7
|
Variety
|
0.075
|
4
|
8
|
8
|
7
|
0.3
|
0.6
|
0.6
|
0.525
|
Quality
|
0.075
|
7
|
8
|
8
|
8
|
0.525
|
0.6
|
0.6
|
0.6
|
Convenience/ ease of use
|
0.075
|
9
|
8
|
8
|
8
|
0.675
|
0.6
|
0.6
|
0.6
|
Trustworthiness
|
0.125
|
9
|
8
|
7
|
9
|
1.125
|
1
|
0.875
|
1.125
|
Total
|
1
|
73
|
81
|
77
|
78
|
7.3
|
8.1
|
7.7
|
7.8
|
*0 is the least score
and 10 is the highest score
* Competitors we
selected based on their size, innovativeness and growth potential
FlipKart has scored well against its closest rivals.
However, a new set of analysis will have to conducted when more mature players
such as Amazon and eBay enter into the market.
Company
|
Revenue (2012-13)
|
M&A partnerships
|
People Employed
|
Size of operation
|
Started in
|
Investors
|
FlipKart
|
1,345
|
WeRead (2010)
Mime360, Chakpak.com (2011)
Letsbuy (2012)
Partners with Ekart Logistics to extend
CoD option
|
4500
|
Coverage: 95 Cities,
Warehouse in 10 Cities, Registered user
base: 2 million
|
2007
|
Accel Partners, Tiger Global,
MIH(Nasper Group),
Iconiq Capital
|
Snapdeal
|
600
|
Grabbon.com (2010)
Esportabuy.com
|
1500
|
Coverage 50 cities and times
|
2010
|
Nexus Venture partners, Indo-US Venture
Partners, Bessemer Venture Partners
|
Infinbeam
|
NA
|
2011- Launched ‘Buildbazzar’
|
600
|
NA
|
2007
|
NA
|
Competitive space is expected to undergo a major change with
players like Amazon entering. Amazon and eBay and other large e-retail players
have a tried and tested business model that can bring profitability to the
Indian eCommerce industry that still alludes the Indian eCommerce industry.
FlipKart whose promoters started their careers with Amazon
will have to get to profitability or at least should be able to lay out a plan
to get to profitable business structure soon.
Industry analysis
India’s consumer-facing e-Commerce market (B2C-C2C) grew at
a whopping CAGR of 49.1% from 2007 to 2011 to reach a market size of US$9.9
billion. On the other hand, the B2B market is a small contributor to the
overall domestic e-Commerce market, and it was estimated at US$50.37 million in
2011.
The country’s B2C e-Commerce sector can be split into two
broad categories — travel and non-travel. Online travel is the largest domestic
B2C e-Commerce segment, accounting for 81% revenues in 2011.
Porter’s five forces model
Forces
|
Parameters
|
Grading
|
Supplier Power
|
Supplier Switching costs
|
Medium
|
Degree of differentiation of inputs
|
Medium
|
|
Presence of substitute inputs
|
High
|
|
Supplier concentration to firm
concentration ratio
|
Medium
|
|
Threat of forward integration
|
High
|
|
Cost of inputs to selling price of the
product
|
Low
|
|
Customer power
|
Buyer concentration to firm
concentration ratio
|
Low
|
Bargaining leverage
|
Medium
|
|
Buyer volume
|
Medium
|
|
Buyer switching costs relative to firm
switching costs
|
Low
|
|
Buyer information availability
|
Medium
|
|
Ability to backward integrate
|
Low
|
|
Availability of existing substitute
costs
|
High
|
|
Buyer price sensitivity
|
High
|
|
Intensity of competitive rivalry
|
Number of competitors (Limited)
|
High
|
Rate of industry growth
|
High
|
|
Exit barriers (Cost involved)
|
Medium
|
|
Diversity of competitors
|
High
|
|
Informational complexity and asymmetry
|
Medium
|
|
Level of advertising expenses (Print, media)
|
High
|
|
Sustainable competitive advantage
through improvisation
|
Mediumm
|
|
Threat of new entrants
|
Existence of barriers to entry
(Regulations etc.)
|
Medium
|
Brand equity
|
High
|
|
Switching costs or sunk costs
|
Medium
|
|
Capital requirements
|
Medium
|
|
Learning curve advantages
|
Medium
|
|
Expected retaliation by incumbents
|
Low
|
|
Government policies
|
High
|
|
Threat of substitutes
|
Buyer propensity to substitute
|
High
|
Relative performance of substitutes
|
High
|
|
Buyer switching costs
|
Low
|
|
Perceived level of product
differentiation
|
Medium
|
In totality, the industry is easy to enter but difficult to
sustain. The high volume and low margin business has to be carefully managed.
This is amply shown in the high churn rate in the industry where many players have
entered and then went bankrupt. With profitability still alluding the players
the industry entrants need to be careful.
In totality there are 5 themes in the industry that will pan out next fiscal year
·
Growth- Product portfolio expansion and
geographical expansion will be the major growth drivers
·
Profitability- As the industry becomes more
acceptable, customer trust will become less of a challenge. The questions of
showing profitability or a plan to show profitability will become more
pertinent. Industry may see some consolidation this year but definitely next
year
·
Platforms- mCommerce will make an impact and interfaces
will become more interactive and intuitive
·
Business models- Marketplace will be a key
driver but many of the companies will start carrying inventory
·
Backward/forward integration- Owning the supply
chain including delivery logistics to take the control from the unreliable
courier company will be the key. Self-branded products will enter the market
Conclusion and recommendations
In the broader context, FlipKart has to chalk out a plan to
become profitable in the next five years by squeezing the costs, expanding
geographically and demographically and getting the business model right.
Based on the analysis, FlipKart should take the following 10
steps:
·
Enhance mCommerce capabilities
o
Build applications and/or website for mobile
platform
o
Develop and include mobile payment as one of the
payment options
·
Increase market reach
o
Target the young. Connect with the young
generation through a robust social media presence
o
Enter the untapped market of tier II & III
cities
·
Do away with 35% dependence on courier services
and build an independent logistic/ delivery network as it is one of Flipkart’s
competitive advantages.
·
Educate people to make a safe online payment.
Tie up with banks to simplify the payment procedures and make them more
trustworthy
·
Price high value products more competitively to
encourage its purchase, which would increase the average transaction value
·
Acquire small players doing business in niche
areas. In Exhibit III, we have done porter’s five forces analysis to understand the
competitive position of Flipkart. This analysis is necessary to understand the
bargaining power of Flipkart’s buyers and suppliers and understanding the
threat from substitutes and entry of new players in the market
·
Treat suppliers as partners but make only short
term contracts, as the customer behavior towards a product can be very
transitory
·
Use predictive analytics to predict a product’s
demand in the future. This is important as Flipkart follows an inventory-based
business model and they need to keep their inventory in line with the future
demand
·
Increase the switching cost for the buyers by
offering them heavy discounts and exclusive offers through online wallet
facilities
·
Tie up with traditional retail stores to
leverage their trust and collective reach in the market
References
In new data, Flipkart sees slowing sales growth, still sells
$217 million worth of stuff in 1 year
The Growing Pains of Indian E-Commerce: What You Need to
Know
How E-commerce Companies are losing Out in India?
What Indian E-Commerce Companies Plan To Do
Strategic Analysis: Flipkart Competitive Position and Analysis
Rebirth of e-Commerce in India (Ernst & young)
Ecommerce Marketplace Integration: Avoid overbuying, overstocking on non-essentials, get notifications when your most in demand, profitable items are running low and need immediate restocking. Click here to learn more!
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