Flipkart transitioned to a marketplace model to continue growing faster than competitors in India's rapidly expanding e-commerce market. This was necessary to cope with immense market growth and the expected increase in online buyers from 20 million in 2012 to over 160 million by 2020. However, the marketplace model reduced service levels as quality assurance became difficult with more sellers. To address this, Flipkart introduced programs to distinguish genuine sellers. Additionally, heavy discounting and incentives from e-commerce companies led to expenses exceeding revenues, which was unsustainable as investors required returns. Flipkart needs alternative revenue sources like digital advertising to maintain competitiveness while improving service quality.
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Case analysis of Flipkart: Transition to a Marketplace Model
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Flipkart: Transition to a Marketplace Model: Transition to a Marketplace Model
Flipkart transitioned to a marketplace model to continue growing faster than competitors in India's rapidly expanding e-commerce market. This was necessary to cope with immense market growth and the expected increase in online buyers from 20 million in 2012 to over 160 million by 2020. However, the marketplace model reduced service levels as quality assurance became difficult with more sellers. To address this, Flipkart introduced programs to distinguish genuine sellers. Additionally, heavy discounting and incentives from e-commerce companies led to expenses exceeding revenues, which was unsustainable as investors required returns. Flipkart needs alternative revenue sources like digital advertising to maintain competitiveness while improving service quality.
Flipkart transitioned to a marketplace model to continue growing faster than competitors in India's rapidly expanding e-commerce market. This was necessary to cope with immense market growth and the expected increase in online buyers from 20 million in 2012 to over 160 million by 2020. However, the marketplace model reduced service levels as quality assurance became difficult with more sellers. To address this, Flipkart introduced programs to distinguish genuine sellers. Additionally, heavy discounting and incentives from e-commerce companies led to expenses exceeding revenues, which was unsustainable as investors required returns. Flipkart needs alternative revenue sources like digital advertising to maintain competitiveness while improving service quality.
Flipkart has made a transition to the marketplace model to enable itself to continue growing faster than other players in Indias rapidly expanding and fiercely competitive e-commerce market. Indian market has seen immense growth in the e-commerce market and is expected to grow further in the coming years. In 2012, there were 20 million online buyers; by 2020, the number of online buyers is expected to be more than 160 million. The namber of metropolitan cities is also expected to grow from 54 to 69, accounting for 45% and 54% of the GDP, respectively, during the same period. To cope up with this growth rate, there is no other option for Flipkart but to go for the marketplace model if it wants to maintain market share. However, there are some issues which come with the marketplace model. The service level reduced in 2015, as Flipkart expanded to smaller metros. Assuring quality across all the sellers becomes a herculean task as the number of sellers increase rapidly. To address this Flipkart came up with Flipkart Advantage (FA) which was similar to Amazons Fulfilled by Amazon. This distinguished between genuine sellers and non genuine sellers.
The price war
By 2013, all the e-commerce companies had gone into a price war. An Indian e-tailer was incurring expenses on an average 1.35 times GMV, as a consequence of heavy discounting, marketing, free shipping, cash incentives and other enticements used to attract customers. This was all being heavily funded by venture capitalists. Flipkart was fuelled by $3 billion investor funding. It had scaled rapidly to $4 billion GMV rapidly and had ambitions to go up to $12 billion. But how long could they continue like this? Investors would need their money soon. They will soon need to leverage themselves based on the service quality rather than price to make it more sustainable. However, going with the marketplace model was hurting the service quality. It needs to look at other sources of revenue like digital marketing. Amazon generates $1 billion from advertising. Flipkart should also dig deeper into it and use data analytics to target specific user groups. Revenue through advertising can help Flipkart maintain price competitiveness and service quality simultaneously.