Originally Answered: How do e-retail websites like Flipkart, Amazon, etc., work?
The
technical term for the model is Marketplace Model. The essence of these
businesses is controlling inventory management over anything else. The
execution may differ from company to company. Let me explain...
Firstly, all of this business models are centered around growth. They spend more in gaining customers as compared to retaining them.
Like a good e-commerce site, they offer two things primarily: range of products, and ease of use. This in turn gains them higher traffic. Essentially, more footfall, in retail terminology.
This model is based on a low-cost structure. The companies work towards reducing their costs so that they can offer a lower than marketplace price to its customers. This is not the same as gaining more customers. Here's how...
Let's say you are a book publisher. Traditionally, 10,000 copies of books are printed, stacked, and then you try to sell them. Once the copies are exhausted, you print another 10,000. Here, you reduce your printing costs marginally, but in turn invest in storage. By rule of thumb, about 16% of your stored products will go towards wastage i.e. copies torn, smudges, dropped, lost, et al. Plus, a reasonable amount of your capital is invested without guarantee of returns.
What these e-commerce sites do is, eliminate the storage part or reduce it to bare minimum. So if you order a book from amazon, it is printed exclusively for you - not pulled from a warehouse somewhere, but freshly printed for you. From the printer it goes to the courier, and from there it comes to you.
If it's electronics, they place the order with the supplier, who then sends it to the e-commerce company or to the courier, depending on size and policies. From there, it's delivered to you.
Do you see the beauty here... You pay upfront to a company that does not have the product you need. Then wait for the product to be prepared exclusively for you, and then it gets delivered.
The question is, why then do you need these companies at all? The answer: pricing. These companies survive and operate solely on reducing the cost of purchase. They do not invest in the product or in the storage. What they invest in is people who will follow through the entire process - from taking your money, to delivering your product
The suppliers agree to reduce the prices because of the quantities these companies purchase from them. For example, Flipkart buys more laptops from Toshiba on a daily basis, than many of their authorized franchisees do weekly.
The major investment for these companies is online presence and maintenance, and the people involved in the process. Flipkart started with an office in 2007. Today it has 6 office buildings and a transit-warehouse. All of this, while 9 of its 11 product lines are operating at a loss or near-loss classification. The e-commerce companies survive and operate on a single mantra: low cost = higher gains.
Some add-ons:
1. The suppliers and the products are generally managed with an open-ended ERP system. The websites hire people under the designation of Business Development to negotiate and follow-up with the suppliers on a daily basis. It is not left to call centre executives.
2. The products are stored by the supplier except for in-transit. In-transit as in, say a fridge arrives today and can only be delivered tomorrow. The e-commerce company stores it temporarily in such a case.
3. The ERP system and coaxing from the website BD executives is responsible for stock tracking and inventory management.
4. If a product is returned, the product goes to the e-commerce company and to the supplier thereon. The supplier bears the cost of bad delivery. Courier charges are generally fixed by pulse (100 deliveries daily, for e.g.) and hence are not a factor in such a case.
4. Order tracking is a combination of courier company's tracking system and of the company's executives maintaining the records using the same ERP module. The courier company executives input and update the delivery status.
5. The delivery addresses are not shared with suppliers; just the addresses for the courier warehouse or the company warehouse.
6. The payment of suppliers is handled weekly or monthly depending on the company policies, and the credit limits the supplier agrees to extend.
7. Genuinity-check is not a big process part. The suppliers are exhaustively back-checked before being allowed to sign-up. They get a limited number of strikes or bad deliveries before they are taken off the suppliers' list. These problems are generally reported by the customer. Checking every delivery eats into too much cost and time of the company.
8. The profit percentages differ from product to product, supplier to supplier. With books it is as high as 40%, with laptops and accessories nearer to 26%, while with phones it goes as low as 5%.
Conversion rates for these sites are of 2 types:
1. Visit-to-registration
This is the sign-up process. It is usually done as a precursor to purchase or to check if the registration leads to unique offers and discounts.
This rate is 5-8% including unique visitors, and people who have forgotten passwords or are creating a second login ID.
2. Click-to-purchase
This is the actual conversion to sale. Generalized trend is 2%. Anything above 1.5% is considered average. Above 2.5% is spectacular.
80% visitors leave the site within first 30-60 seconds - either due to undesirable usage experience, bandwidth issues or after checking the price of the product. The conversion rate among the users who stay longer is 3-5%. This is a subset of the previously mentioned 2%.
These statistics hold true for all 4 sites you have mentioned. The outliers are the special offers, promotions, and super-sale days. All of these statistics have a huge variation depending on the product lines you consider. They can be broken to many, many more levels of analysis.
The payment gateways used by these sites are generally 3rd party. Even by Indian standards, the dollar-converted charges are too heavy to be taken upon. Plus along with the power of owned payment gateways, comes the responsibility of security, and necessity of adherence to KYC, anti-money-laundering, anti-terrorism and such norms. Up until recently, even Amazon chose to use the PayPal services instead of developing an independent gateway. It's not without reason. Let the sites do the selling, let the bankers handle the money.
I think i have covered almost all aspects of the e-commerce business. At least as much within this space as i could, without making it boring.
Please write to me here or on huckster@outlook.com if you have any more queries and questions.
Firstly, all of this business models are centered around growth. They spend more in gaining customers as compared to retaining them.
Like a good e-commerce site, they offer two things primarily: range of products, and ease of use. This in turn gains them higher traffic. Essentially, more footfall, in retail terminology.
This model is based on a low-cost structure. The companies work towards reducing their costs so that they can offer a lower than marketplace price to its customers. This is not the same as gaining more customers. Here's how...
Let's say you are a book publisher. Traditionally, 10,000 copies of books are printed, stacked, and then you try to sell them. Once the copies are exhausted, you print another 10,000. Here, you reduce your printing costs marginally, but in turn invest in storage. By rule of thumb, about 16% of your stored products will go towards wastage i.e. copies torn, smudges, dropped, lost, et al. Plus, a reasonable amount of your capital is invested without guarantee of returns.
What these e-commerce sites do is, eliminate the storage part or reduce it to bare minimum. So if you order a book from amazon, it is printed exclusively for you - not pulled from a warehouse somewhere, but freshly printed for you. From the printer it goes to the courier, and from there it comes to you.
If it's electronics, they place the order with the supplier, who then sends it to the e-commerce company or to the courier, depending on size and policies. From there, it's delivered to you.
Do you see the beauty here... You pay upfront to a company that does not have the product you need. Then wait for the product to be prepared exclusively for you, and then it gets delivered.
The question is, why then do you need these companies at all? The answer: pricing. These companies survive and operate solely on reducing the cost of purchase. They do not invest in the product or in the storage. What they invest in is people who will follow through the entire process - from taking your money, to delivering your product
The suppliers agree to reduce the prices because of the quantities these companies purchase from them. For example, Flipkart buys more laptops from Toshiba on a daily basis, than many of their authorized franchisees do weekly.
The major investment for these companies is online presence and maintenance, and the people involved in the process. Flipkart started with an office in 2007. Today it has 6 office buildings and a transit-warehouse. All of this, while 9 of its 11 product lines are operating at a loss or near-loss classification. The e-commerce companies survive and operate on a single mantra: low cost = higher gains.
Some add-ons:
1. The suppliers and the products are generally managed with an open-ended ERP system. The websites hire people under the designation of Business Development to negotiate and follow-up with the suppliers on a daily basis. It is not left to call centre executives.
2. The products are stored by the supplier except for in-transit. In-transit as in, say a fridge arrives today and can only be delivered tomorrow. The e-commerce company stores it temporarily in such a case.
3. The ERP system and coaxing from the website BD executives is responsible for stock tracking and inventory management.
4. If a product is returned, the product goes to the e-commerce company and to the supplier thereon. The supplier bears the cost of bad delivery. Courier charges are generally fixed by pulse (100 deliveries daily, for e.g.) and hence are not a factor in such a case.
4. Order tracking is a combination of courier company's tracking system and of the company's executives maintaining the records using the same ERP module. The courier company executives input and update the delivery status.
5. The delivery addresses are not shared with suppliers; just the addresses for the courier warehouse or the company warehouse.
6. The payment of suppliers is handled weekly or monthly depending on the company policies, and the credit limits the supplier agrees to extend.
7. Genuinity-check is not a big process part. The suppliers are exhaustively back-checked before being allowed to sign-up. They get a limited number of strikes or bad deliveries before they are taken off the suppliers' list. These problems are generally reported by the customer. Checking every delivery eats into too much cost and time of the company.
8. The profit percentages differ from product to product, supplier to supplier. With books it is as high as 40%, with laptops and accessories nearer to 26%, while with phones it goes as low as 5%.
Conversion rates for these sites are of 2 types:
1. Visit-to-registration
This is the sign-up process. It is usually done as a precursor to purchase or to check if the registration leads to unique offers and discounts.
This rate is 5-8% including unique visitors, and people who have forgotten passwords or are creating a second login ID.
2. Click-to-purchase
This is the actual conversion to sale. Generalized trend is 2%. Anything above 1.5% is considered average. Above 2.5% is spectacular.
80% visitors leave the site within first 30-60 seconds - either due to undesirable usage experience, bandwidth issues or after checking the price of the product. The conversion rate among the users who stay longer is 3-5%. This is a subset of the previously mentioned 2%.
These statistics hold true for all 4 sites you have mentioned. The outliers are the special offers, promotions, and super-sale days. All of these statistics have a huge variation depending on the product lines you consider. They can be broken to many, many more levels of analysis.
The payment gateways used by these sites are generally 3rd party. Even by Indian standards, the dollar-converted charges are too heavy to be taken upon. Plus along with the power of owned payment gateways, comes the responsibility of security, and necessity of adherence to KYC, anti-money-laundering, anti-terrorism and such norms. Up until recently, even Amazon chose to use the PayPal services instead of developing an independent gateway. It's not without reason. Let the sites do the selling, let the bankers handle the money.
I think i have covered almost all aspects of the e-commerce business. At least as much within this space as i could, without making it boring.
Please write to me here or on huckster@outlook.com if you have any more queries and questions.
From Your Quora Digest
Is it possible to earn 1% per day in stock market?
Sure. I did it yesterday. Oh, you meant every day.
There are about 250 business days in a year, so if you started with $1, after a year you'd have 1.01250=$12.03 , an annual return of 1100%. That's of course a...
(more)
From Your Quora Digest
How is the job life in RBI?
As I interact with officers on daily basis I know the salary, perks, facilities, lifestyle, overall career opportunities and work profile of direct re... (more)
From Your Quora Digest
What can I do an hour a day that will make my life better in 30 days?
In
30 days? While there's nothing better than determination and
perseverance of doing the things you are supposed to do to make your
life better, we also can't deny the fact that an efficient use o...
(more)
Top Stories For You
Answer written
How can I make 500 rupees daily from the Indian stock market if have only 10000 rupees to invest?
I
will tell you exactly how to make Rs.500 or more everyday with
Rs.10000. Everybody has a system and I’m willing to tell you how I would
make Rs.500 almost everyday, if I were you.
Steps:
- Get a trad...
No comments:
Post a Comment