E-retail in India: How to win without discounting

Aggressive pricing strategies have made online a challenging market space to compete in and deterred many retailers from investing in this emerging channel. But pricing is not the only way to woo online shoppers. A deeper understanding of their behaviour reveals how Indian retailers could make their mark online without relying on price alone.

E-retail has taken India by storm, growing at a staggering annual rate of 40% for the past seven years. Every day, more consumers are turning digital across the country. These shoppers are drawn online for multiple reasons. Some appreciate the convenience of shopping from home or after working hours, while others use online because of the wide diversity of products and brands available. But most consider online shopping as an opportunity to buy highly discounted products.

While everyone likes a bargain, Indian digital shoppers are taking deal hunting to the next level. Our analysis shows that over 80% of consumers buying online in India are looking for the best available deals before making a purchase. And 50% even declare that price is more influential on their purchasing decision than a brand name. The problem is that as discounts become the norm, the Internet is becoming an increasingly challenging space to compete in.

First, low or negative margins are creating barriers for aspiring new entrants that cannot compete at a loss against heavily funded marketplaces. Second, aggressive pricing is slowly eroding the efforts that brands have put into capturing mind-space and securing customer loyalty. In a channel where price is the main selling point, customers are increasingly tempted to drop their preferred brands and switch for the most attractive bargains.

But investing in discounts is not the only way to compete online. Indian retailers can break the current paradigm if they decide to play by different rules. Our teams of consumer analysts have studied online shoppers in India to understand what factors have the most impact on their decision-making. Our study reveals that retailers in India could compete online without massive discounts if they followed three simple mantras.

Make it personal

Instead of competing through indiscriminate price cuts, E-tailers should follow the mantra of making it personal and opt for tailored bargains. Used wisely; promotions and limited offers can be a powerful marketing tool for retail businesses, and online retail is not an exception.

The issue so far has been that most E-tailers have mimicked the pricing strategies of marketplaces, which rely on constant bargains to drive customer traffic. Some marketplaces are exclusively centred around the concept of bargains, while other frequently advertise bonanzas for a limited duration, attracting customers with promises of massive price cuts on women shoes, or unbeatable bargains on laptops. When selling through these platforms, retailers are indirectly forced into cutting prices to match those offered by other vendors. And if they choose to sell through their own websites, they often lack the tools to draw customers in without setting low prices as well.

By getting trapped into this vicious cycle they are missing the potential to leverage big data to adapt their pricing and advertising to each individual shopper. Retailers need to become experts in capturing relevant customer data and processing it through automated algorithms. By doing so, they could make customer acquisition and retention both more effective and more cost-efficient. For example, by accurately profiling high-spenders and identifying the right time and communication channels to reach them, retailers could acquire new customers profitably through customised offers. So, instead of declaring a flat 40% discount on a full range of t-shirts, a retailer can analyse the buying patterns of individual shoppers over a period of time and send promotional coupons with customised discounts.

Interestingly, with this approach, both the customer and the retailer end up more satisfied. Indeed, digital customers in India are highly appreciative of retailers’ efforts to customise their offer. Our study shows that 60% of digital buyers are willing to voluntarily opt-in to receive personalised rewards. And more than 20% rank personalised recommendations amongst the most effective activities an E-tailer could do to positively influence their purchasing decision.

Leverage the bricks

Another way retailers can woo digital customers without playing the heavy discount game is by leveraging the strengths of their physical outlets to provide a compelling value proposition. There are three ways brick and mortar players can achieve this.

The first is by turning stores into a place where customers can have a rewarding experience. Our study shows that while digital consumers are comfortable with virtual shopping, they still cherish meaningful live interactions with brands and products. When asked how they would prefer brands to act towards them, Indian digital shoppers placed items such as “providing me with interesting real-life experiences”, “giving me personal service” or “entertaining me” at the top of the list. Stores are undeniably better suited than the Internet to meet such requirements, giving a unique opportunity to brick and mortar retailers.

Another way stores can gain a precious advantage is by giving legitimacy to the brands sold online. With the development of marketplaces, a number of vendors have gained the means to market their products across India in a fast and easy manner. This has multiplied the number of brands shoppers have to sort through when browsing the internet, making it increasingly difficult for any particular brand to stand out. In the crowded online space, players that can also interact with consumers offline have the advantage of being able to differentiate their brands to gain legitimacy in the eyes of shoppers.

Finally, brick and mortar stores can also play a key role in helping customers make decisions in their purchasing journey. Interestingly, more than 75% of digital consumers in India are overwhelmed by the sheer choice available online. To sort between platforms, vendors, brands, products, and price points, they often need to resort to search engines and scan through a number of customer reviews. Because this process can be frustrating and ineffective, physical outlets remain an attractive option even for the most digitally mature shoppers. In this context, brick and mortar retailers once again benefit from an advantage over pure online players. By providing opportunities to browse through a curated selection of items, touch products, and interact with people, they can add a lot of value in the digital shoppers purchasing process.

In the digital age, these elements can turn stores into a powerful competitive advantage. However, adding value through physical stores will only be profitable if retailers succeed in keeping customers in a closed loop throughout their multichannel purchasing journey. To do so, integrating the offline and online offer will be crucial. Across channels, retailers will need to ensure uniformity in product assortment, pricing, and promotions. Also, value propositions from online and offline will need to be intertwined. Customers should be able to benefit from home delivery for an in-store purchase, or online ordering prior to picking up a product at the store.

Be social

Digital consumers in India are highly active on social media. Our research shows that out of the five hours they spend online on an average day, two hours are devoted to social networking on sites and applications like Facebook, Linkedin or Twitter. These platforms are used primarily to engage with people but a substantial share of members also use them to connect with brands they like (50%) or would consider buying (42%).

By increasing their brand’s social quotient retailers can achieve a substantial advantage. First, social media is an effective channel for retailers to promote their brands and products. For example, “maintaining their social media presence” is cited by digital customers as the third most effective way for a company to positively influence their purchasing decision. Second, social media is a powerful tool for players to monitor and engage with the discussions customers are having about their products. Creating and managing online communities can actually be a potent source of differentiation given that 50% of digital consumers reveal they would be “willing to buy a brand simply for the community built around it”.

To be successful, however, retailers will need to take their social media game to the next level, as customers already have high expectations in this space. Today, digital consumers will look up to retailers that can “provide customer service through social media”, “show information about their friends’ purchases”, “connect them with people” or “involve them in product development”. The ability to provide value through such advanced features will differentiate social media champions from laggards, but will also require a major commitment from retailers.

By following these three mantras, retailers can change the current price paradigm and compete in India's E-retail market without relying on heavy discounts.