Can the Cart Flip for rural e-commerce?

|July 20, 2015 0
Technology came and shook up the shopping tree in urban India to the core. Drilling towards the bottom of the pyramid appears to be a high-hanging fruit as of now. Can it be juicy enough to climb all the way out for? Inthree’s attempts reveal more.

Pratima H

INDIA: When they started touching customers tucked far away in Indian hinterland through the well-spread fabric of India Post, they had little notion of the huge treasure chest that lay underneath this soil they were barely scratching the surface of. But slowly, steadily and relentlessly Ramachandaran Ramanathan started digging deeper into the mammoth potential that the oft-forgotten, frequently-ignored and hard-to-touch rural market harboured.

Some miles away, a whitepaper on e-tailing by Technopak was reckoning that in India, e-tailing could reach a value of 76 billion by 2021. That’s where it also talked of the geographical complexity, suboptimal infrastructure and regulatory variations across the country, and how established e-tailers were investing in setting up their own last mile delivery networks, or how India Post’s role in the last mile delivery came to fore (remember with around 21000 pin codes, and most 3PL players pinning some 8000-10000 pin codes at best) with its formidable network and an-already established mechanism to handle money orders etc.

Fast forward to the current scenario which, as captured in a recent paper on E-commerce in India by PwC, shows that India Post transacted business worth Rs. 280 crore in the cash-on-delivery (CoD) segment for firms such as Flipkart, Snapdeal and Amazon.

What still popped conspicuously here was that Europe, country-wise, the US, UK and China together had accounted for 57 per cent of the world’s total B2C eCommerce sales in 2013, (China having total sales of $328.4 billion) and India had sales of only $ 10.7 billion (read 3.3 per cent of that of China in 2013 with fifth position in AsiaPacific). This becomes stark when juxtaposed with India’s otherwise high demographic dividends which are just like China. But then India’s internet penetration with total e-households stood at 46 million against China’s 207 million. Also, as per a Forrester Research only 16 per cent of India’s total population was online in 2013, wherein of the online users only 14 per cent emerged were online buyers putting India at an immature stage of evolution of online retail spending.

It has been witnessed however that eCommerce is increasingly attracting customers from Tier 2 and 3 cities, where people may have limited access to brands but still pack high aspirations. From what eCommerce companies have shown, these cities have seen a 30 to 50 per cent rise in transactions. Amidst these findings, the PwC research also threw up concerns like poor last-mile connectivity, especially in remote areas with larger population, or high payment costs wherein CoD services impose substantial financial cost. Profitability has also been noticed to have been negatively impacted by high customer acquisition costs, free shipping and high rejection rate of CoD orders.

Beyond the cities we inhabit, clearly lies a mystical market brimming with an intriguing appetite and bizarre stomach-aches simultaneously.

That’s exactly where today Ramanathan, founder & CEO, Inthree, is all perspired and insatiably hungry to blaze a new trail with rural e-commerce.

What makes this rural customer so different and yet so much chase-worthy? What drives this psyche? What deters him/her? What spurs this elusive wallet into spending? What tunes this market off or on the marketing and logistics radar? What nuances and surprises throb underneath this stereotype?

Ramanathan’s shovel has gone deep enough to give us a glimpse of this under-ground plot, and in this well-stretched interview he is keen, generous and curious to discuss the many intricacies that shape or will shape rural-e-commerce. Let’s step downstairs.

How did this venture come into being?

We started exploring the business of rural marketing in April 2009 as a consultant arm for some corporate where we sold white goods, phones, nuts etc and firmed up the distribution well through tie-ups with India Post, PDS systems etc. There was a lot of experimentation that we subjected ourselves to and saw a lot of surprising success spots like selling 100,000 solar lamps through post offices. We expanded into financial goods, inclusion areas, agri-products etc and as we were churning the ocean we discovered ways of acquiring and satisfying customers in cost-effective ways, fresh marketing approaches and in optimal networks. How to sell, what to sell, how to collect cash and how to deliver to a village is what we captured gradually but strongly. Today, Inthree focuses on catering to the aspirations of the rural customer, and now we are leveraging those years of experience in last mile distribution and expertise in working in rural markets. Additionally, Inthree has also assisted many top corporates in designing and implementing projects in rural locations, aimed at accessing the rural customer in the most efficient and cost effective manner.

Why the bandwagon of e-commerce and that too in a difficult, almost-virgin topography?

The e-commerce sector has obviously seen unprecedented growth in 2014, driven by rapid technology adoption, a whopping rise of devices such as smartphones and access to the internet through broadband. Today, we see the Indian government’s ambitious Digital India project and the modernisation of India Post may also affect the sector as rural markets acquire significance, and the purchasing power of the rural communities rises substantially. This is a market that contributes to 50 per cent of India’s GDP and the rural customer seeks good quality products at a reasonable price. We also see how the number of middle income and high income households in rural India is expected to grow at a faster pace than urban India. So why not tap them and give them what they are ready and looking for? Inthree’s pioneering eCommerce initiative Boonbox that came about in March covers all the product categories and SKUs that they aspire for, at their doorstep. We had seen and palpably realized that the rural customers want products to come to them and that’s how the penny dropped for us. We changed it from a product-push to a customer-pull model. We started expanding the range, product base, approached all pain points and firmed up efficiencies.

Ramanathan, CEO, InthreeRamanathan, CEO, Inthree

The typical rural prospect lives in a media-dark and technology-eclipsed world? How easy is to reach and sell to them effectively then? Wasn’t technology an irony for e-commerce here?

Yes, we know how data connectivity works in India once you start travelling outwards a city. So we came up with an assisted model. Ours is a hybrid format where agents carry catalogues on their mobile apps and show or explain to the customer and take orders. They can upload the orders etc as soon as they sync with servers or through SMS updates. But the app and mobile part helps trigger the initial impulse for the customer.

The likes of Sahaj, Snapdeal and even some big boys have started their quasi-rural ambitions already. What makes your rural-e-commerce idea stand out?

There are many deterrents that define this market and some major realities will have to be faced before anyone cracks this successfully. Our return on COD model has seen 70 per cent numbers. We have seen how critical a platform becomes in this market and how you can just not afford to ignore the after-sales part. In India, the 40 km radius is still a psychological limit for service and beyond that it becomes a ‘favor’ to customers. What urban customers have taught will hardly allow to unearth this new surface. For the urban customer, the switch-factor is still price to a large extent but a rural customer would be different. Logistics is going to be a totally new ball game here and you can’t rely on a courier-service or tracking apps for this unstructured-multiple-channel market. For the urban players, I guess that metros and tier-two towns are still the low-hanging oranges, and rural segments would be more of wild berries. There are so many process improvements and realities that need to be confronted for this segment.

What have you been selling and what lessons or unusual observations you have got a grip on so far? Like their level of brand-consciousness or price-elasticity?

We have sold everything from refrigerators or washing machines to sarees, artificial jewellery etc. There are so many pin codes in India we have to deliver to. We are doing a combination of branded-semi-branded mix. Customers are also perched on different levels of pricing or branding depending on the product category (like a washing machine vs. a pair of jeans) or the situation or purchase-occasion (like jeans on Diwali vs. jeans on a routine day). What is usually taken for granted is their brand-perception. Contrary to how a rural prospect is usually seen, s/he is extremely brand-aware Also, an urban customer may not care too much about the company s/he buys from through e-commerce, but for a rural customer the ‘connect’, the ‘face’, the ‘after-sales’ part, the ‘trust’ plays a consequential role. They may go ten streets extra to buy or order through from a person they know and talk to instead of just clicking from any catalogue or person available nearby.

So which of the famous Ps of marketing works strongly or otherwise for this rural customer?

Usually TV is the first big-ticket buy for a rural household and also the first premier one to switch to (when LCD or bigger models come in). This customer is very sensitive on brand quality (ex-Godrej products) and branding becomes critical for white goods. Other categories like clothing get complex depending on when they are being bought, at what life stage or need etc. They spend on two strong areas – first impulse-led and second category-linked.

Certainly, distribution or marketing outreach is not a cake-walk on this terrain?

It’s a different set of challenges and strategies. For marketing we use NGO or micro-finance agents together with our mobile-app-agent model and for distribution, India Post, new channels (for white goods for instance), or Boonbox agents are working in alignment and we are going pretty smooth. Having distributed durables to over 5,00,000 households in semi urban and rural locations, the network allows us to touch the farthest towns and villages in the hinterland and is a great channel to distribute products and services to the vast rural audience.

Would you compete with or complement the FMCG majors (like HUL or ITC) who have also been aggressive on rural markets?

There is a massive population in India that has never been tapped just because of geography and when you add the factor of their awareness levels (thanks to TV etc), you are staring at an immense potential. Urban arrogance assumes the rural customer will make that trip to a nearby small-city and do the purchases required. But means of transportation, desire or expenses or other factors do not let that happen too often. It is a big market we have all been oblivious to. But we are happy with the model we have now and FMCG angle, even if it happens in future, will be largely collaborative. That said, there is enough and more market for all kinds of products and segmentation.

So where are you headed?

We have chosen geographies and we will go in depth along with channel diversification in pipeline, bringing some structure to an inherently-unstructured market, bolstering service aspects, exploring CRM etc. We could be hitting the turnover we have marked in a couple of years. Inthree plans to raise around $ 6 million and have a presence in 280 districts, around various states, over the next four years. We are excited to paint the canvas now that we have started this untried picture and the deeper we go, the more we will learn.

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