Monday, 18 August 2014

Adding a New Intermediary - Jabong's Market Penetration strategy

In dozens of India small towns, online retailers cannot deliver customers goods at their doorstep because of challenges ranging from poor road connectivity to fear of robbery. Jabong, one of Indias biggest fashion retailers, is doing the next best thing with its NextDoor service where customers can pick up what they have ordered online at the nearest coffee shop, petrol station or tour operator.
We are sitting on supply chain opportunity said Praveen Sinha, co-founder and managing director of the Delhi-based online fashion retailer which is piloting the most extensive initiative of its kind by an Indian company. The trial for the pickup service will start this week in 39 towns, among them are Murshidabad in West Bengal, Chandausi in Uttar Pradesh, Dahod in Gujarat and Udhampur in Jammu & Kashmir. Our hypothesis is that if we can provide convenient delivery support then there is potential to get 70% of our demand from non-metros, said Sinha, whose company is the second-largest online fashion retailer after Myntra.
Jabong declined to share financial details but said it sold goods worth $25 million ( 125 crore) in the month of December, 2013. Jabong gets about 50% of its revenue from non-metro centres and Sinha expects small towns, so far not serviced by logistics partners, to contribute 15-20% to sales once the pickup service scales up.
India's online retail industry is estimated by Crisil to be worth more than 50,000 crore in 2016, but it is still hobbled by poor infrastructure. For example, logistics firms in India cover only a maximum of 15,000 out of the over 1.5 lakh pin codes in the country. Even where logistics can reach, orders above certain sizes or value are not delivered in many of the pin codes. Also, cash-on-delivery, the mode of payment chosen by about 60% of online shoppers, is not an option in many of these locations.
But growth for online retailers is coming from areas where physical connectivity is missing but not internet connectivity, especially through mobile phones. At Jabong, for example, mobile users now contribute 25% of its orders, up from less than 5% 15 months back.
In five years, the volume of orders from smaller towns will outstrip the demand from tier-I cities, said Manish Saigal, managing director at advisory firm Alvarez and Marsal. ? The problem for them (online retailers) is that serviceability of demand in these smaller markets is very limited at present.
Companies have begun to experiment with different services to overcome this challenge. Amazon India is running a pilot in Bangalore where its online customers can pick up orders from the small retail shops that dot the streets of Indian towns. It is also testing out a pickup service in Delhi and Mumbai, where customers can choose to claim their orders from Bharat Petroleum fuel retail outlets. In May, online marketplace ShopClues partnered with offline payments and remittances company Suvidhaa to collect cash payments before delivery of product from online buyers through the latter's network of over 65,000 small retail outlets spread across about 2,500 cities and towns.

Jabong is putting in place a series of processes for the pickup service. "We have built the technology platform through which we can put in place checks and balances at each handshake point," said Sinha.

The platform will help the company keep track of orders reaching the pickup centre and ensure that the order is handed to the right customer. Partners will be paid for every order they fulfil.

While such services are becoming a necessity, experts warn that issues like the service partners' ability to handle cash-on-delivery and technology can be problematic.

"How will they provide such services profitably and at scalethat's the challenge," said Alvarez and Marsal's Saigal. Jabong's Sinha said he is aware of the complexities and hopes to refine the process with the pilot before scaling it up. "The need is there in these small centres," said Sinha.

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