 "Joker & Witch")
India's e-commerce story is no longer limited to billion-dollar valuations and discount-crazy consumers thronging shopping websites. The online marketplace has now become an incubator for entrepreneurs who are hawking rare, obscure or even unpopular products. The shift was inevitable. The search for differentiation in an environment of cut-throat price competition has taken marketplaces like Snapdeal, Myntra, Pepperfry and Fashionara to the doorstep of many small, regional brands and makers of niche products, who are now able to sell their products across the country without worrying about managing logistics or marketing. Says Sandeep Komaravelly, senior vice-president, marketing, Snapdeal, "The online platform enables this transaction between sellers and buyers at zero upfront cost, and hence, the size of the business is not a pre-condition. This is how the online marketplace model democratises entrepreneurism and business growth by giving people more options."
So while analysts continue to question the sustainability of a model driven by heavy discounting, some marketplaces are already chasing the long tail, tapping demand that is unarticulated and translating it into incremental sales. And since the internet makes distribution easier and uses state-of-the-art recommendation techniques to help consumers become aware of more obscure products, niches that weren't popular are now being discovered by consumers.
The simple truth is, the long tail makes little economic sense in a physical world because stores only have so much shelf space and any brand/product stocked needs to justify its presence on the shelves by selling a requisite amount. On the other hand, it costs a Snapdeal nothing to put a rare, not-really-top-of-mind product on its catalogue, and sell a couple every week. Sure, it may never become a smash hit, but some sales in the long tail do add up to a significant market size.
In that sense, e-commerce has the potential to queer the pitch for the short head - large-volume, mass market products. Says Sudhir Voleti, assistant professor, marketing, ISB, "The long-tail model is about finding demand that is latent and players who find this latent demand will succeed."
Product is hero
At the end of the day, says Ganesh Subramanian, COO, Myntra, the hero of this story is the product, which is offered at a good price. He believes, online platforms are a great opportunity for sellers since young buyers are willing to experiment. "In terms of value, a third of our business comes from small-and medium-sized brands. We help with marketing support but success hinges on the product," he says adding that while building scale to keep pace with growing demand can be tricky for a small producer, it is not impossible - one of his regional partners, for instance, has scaled Rs 50 crore in revenue in two years.
Indeed, there are many such stories of internet entrepreneurs who ditched their jobs to sell fun products online. Some started for a lark, but now have credible businesses and are now building scale. Rahul Khullar, CEO & founder, Style Homez Inc, for instance, decided to sell bean bags from his home in 2013 in Delhi. His relationship with Snapdeal began in November 2013. From 30-40 pieces a month, Khullar now sells 3,200 pieces. Says Khullar, "We grew 100 times in one year and the branding support that Snapdeal provided through newspaper inserts and via Google ads drew customers to our website and urged them to check out our products." The brand today services more pin codes in the country than it had hoped for in 2013. The team has also grown - and stands at 35 people right now.
Anupam Barman, a silk sari retailer based in Varanasi, has seen his sales jump 25 per cent in 2014 compared to the previous year, after Snapdeal approached him to sell his products on the portal. Not only has Barman found a new audience for his woven silks, he now gets to connect with the consumers directly and gets feedback on what products sell well and which ones require a bigger push.
Khullar of Style Homez says that since his venture was self-funded, it did not have the required financial muscle to invest in brand building. But its relationship with Snapdeal gave it instant visibility. What has worked to his advantage is the payments cycle, which coincides with a sale.
Kitsch is king
One visible trend is that most marketplaces are reaching out to people who either manufacture or deal in kitschy products. Arun Sirdeshmukh, founder of Fashionara, says unusual products that are not found in physical stores do well on online channels. Unusual gift items or trinkets are known to attract millennials who tend to shop more frequently online.
Given that most of these merchants are not really bred-in-the-bone merchants they need support in product selection and in showcasing them online. Most marketplaces help merchants build their e-catalogue and in listing them on the platform. In many cases even the product descriptions and photo shoots are facilitated by the e-commerce platform.
Even when it comes to inventory management, the shopping portals give inputs to the sellers on the minimum inventory they need to hold at any given point in time according to the category. Akshay Juneja, founder of Fabdeal, an ethnic wear brand from Surat that sells on Myntra, says that Myntra gives his team a heads-up on how their stock is doing and how many pieces of which design they should they hold. Says Juneja, "The advantage of this relationship is global reach. When we were offline we could only sell to local customers; now we reach overseas audience as well. From 50 pieces a day, our sales have gone up to 200-300 pieces a day. During the festive season, Fabdeal had to organise delivery of 600 pieces a day."
That said, some analysts are wary of the long tail theory's implicit challenge to the Pareto principle - or the so-called 80-20 rule, which would make it appear that there was a greater importance of the hit products - and warn the long tail theory may not be universally applicable. In a working paper titled, "Is Tom Cruise Threatened? Using Netflix Prize Data to Examine the Long Tail of Electronic Commerce," Wharton Operations and Information Management professor Serguei Netessine and doctoral student Tom F Tan contended that while the long tail effect holds true in some cases, mass appeal products retain their importance when expanding product variety and consumer demand are factoring in.
"There are companies based on the premise of the Long Tail effect that argue they will make money focusing on niche markets," says Netessine. "Our findings show it is very rare in business that everything is so black and white. In most situations, the answer is, 'It depends.' The presence of the Long Tail effect might be less universal than one may be led to believe."
According to Netessine, "The Long Tail effect may be present in some cases, but few companies operate in a pure digital distribution system. Instead, they must weigh supply chain costs of physical products against the potential gain of capturing single customers of obscure offerings. Companies must also consider the time it takes for consumers to locate off-beat items they may want." (Source: Rethinking the Long Tail Theory: How to Define 'Hits' and 'Niches', Knowledge@Wharton) Also the task before the curated marketplaces is far from easy. They have to evaluate the products for their quality and the vendor for his reliability to be able to make a difference in the market. Most of the marketplaces have separate quality teams to monitor products, quality and catalogue. Mind you, this is not a one-time effort but has to be done continuously. That apart, the onus of distribution also lies with the marketplace. On receiving an order a marketplace will connect with the relevant vendor and take care of the packaging and delivery within the promised time. Managing reverse logistics - ferrying returned products - is also handled by the concerned marketplace.
Handholding new entrepreneurs might be a wonderful thing and the long tail might earn e-commerce players rich dividends, but is the model sustainable? Most sellers on these marketplaces are growing at breakneck speed and if this growth continues, they will have to scale up rapidly to meet demand. Failure to meet demand or quality expectations would not only harm the vendor, it has the potential to hurt the credibility of the marketplace as well. Fashionara's Sirdeshmukh, however, does not believe it is an issue. Most marketplaces use advanced predictive analytics to get a sense of future demand. If they sense that a vendor cannot meet the demand, the easiest thing to do is to remove the vendor's catalogue from the site.
Subramanian of Myntra says, "The growth of these smaller brands will be determined by their ability to scale up. They have to invest in infrastructure. "
Most e-commerce portals believe that this trend will play out in two ways. Some of these brands will emerge as strong standalone brands in their own right. If and when they do, they would want to migrate to their own websites. On the other hand, some will remain niche and only cater to an audience their inventory allows them to service. However, maintaining quality and managing the time-to-consumer-doorstep will continue to be the biggest challenges on their way.
STARTED BY: Akshay Juneja, Kishore Agarwal Year: 2011 (Surat)
- PRODUCT: The brand focuses on Indian ethnic wear - dress materials, readymade kurtis and saris. The brand has partnered with Myntra and Amazon among several other large e-commerce platforms
- GROWTH STORY: The duo used to sell 50 pieces a day, which has now gone up to 200-300 pieces a day. During festive season they can handle up to 600 pieces a day. The founders expect to grow three fold by 2016. Online commerce platforms provide them with banner ads on their website as sales growth has been strong
- BIG MARKETS: Tier-II and Tier-III and south India
STARTED BY: RAHUL KHULLAR
Year: 2012 (New delhi)
- PRODUCT: Bean bags
- GROWTH STORY: Company clocked revenues of Rs 58,000 soon after launch. Achieving MoM growth of 15 per cent. By October 2013, it has clocked Rs 2, 20,000 in sales. After partnering with Snapdeal in November 2013, it has clocked sales worth Rs 3, 21,000 a month, a 25 per cent increase in revenues
- BIG MARKETS: Tier-II and Tier-III apart from towns in Tamil Nadu and Assam
STARTED BY: Satish Singh, Maya Varma
Year: 2014 (New Delhi)
- PRODUCT: Kitschy accessories, apparel and handbags
- GROWTH STORY: Starting off with just 19 orders in October 2014, the brand has closed December 2014 with 200 orders. It plans to clock 1,000 orders per day by the end of 2015
