Indian Institute of Foreign Trade

EPGDIB HYBRID 19-20

Online Business and Ecommerce

Term End Examination

Time: 1 ½ Hours Max. Marks: 40

It is an open book examination. Please go through the case and attempt all questions at the
end. Precise answers will be appreciated.

Case

Shoppy.com, online goods marketplace player for products in India, was established in 2009
by a team of first generation entrepreneurs RajatSehgal, KantiSinghal, SulekhaDhar and
Dhiraj Raina. In 2018, Shoppy achieved a gross merchandise volume of around Rs.2800
crores and sees around 3-4 million visits per day. Rajat holds CEO position since beginning
and secured several rounds of funding from global majors. The merchandise turnover has
grown consistently over years. Kanti looks after business development, Sulekha sees
marketing whereas Dhiraj takes care of finance, all reporting to Rajat. Karan Dhingra was
hired in 2012 to look after technology part, who has contributed a lot till date helping
Shoppy use advanced technologies which has helped company to manage effectively and
efficiently various areas of coordination in supply chain management.

Online retail in India has been growing fast which is expected to reach around US $ 200
billion by 2026. Studies on online buying in India reveal fast growth of online retail and
estimates based on transaction size which was around US $ 15 billion in 2016 and US $38.5
billion in 2017. Whereas Indian retail market was around US $ 500 billion in 2016 which
means online contributes around 3% but analysts feel that it is likely to increase by another
9% which means 12% of the overall retail in next 9-10 years indicative of huge opportunity
in online retail, lot of employment opportunity and plenty of action in e-commerce players
space. These estimates ride on factors like higher growth of online population, positive shifts
towards online shopping behavior and growth of network access and higher data
consumption, competitive prices and offers, better logistics etc. . Indian market throws lot of
opportunity in terms of size and experimentation. Google plans to enter Indian ecommerce
market. On funding side, more than 20 deals across 21 private equity and venture capital
deals for US$ 2.1 billion fructified in 2017 and similar trend continues in 2018.

According to a report by the Internet and Mobile Association of India (IAMAI) and Kantar
IMRB , there were around 480 million internet users towards the 2017 compared to 425
million towards the end of 2016 . The number was expected to surpass 500 million in
2018. The urban penetration was 65% in 2017 as compared to 60% in 2016 whereas rural
Internet penetration was 20 % in 2017 compared to 18% in 2016.
As per an ASSOCHAM-Resurgent joint study in 2018, online shopping was expected to
achieve annual growth of more than 100%. The study also revealed that device source of
online traffic inflow is shifting to smart phones. Around 50-60 % buyers access sites using
smart devices. In online goods segment, certain categories of products are preferred more for
online buying like apparels & accessories followed by beauty and personal care and
electronics. Though multiple options are provided by most the online marketplaces for
payment like credit card, debit card, cash on delivery etc. but cash on delivery is still
preferred by larger chunk of online buyers so far.

According to some reports, number of online buyers is expected to go up around 250% in

next 3-4 years. Interestingly, much of the growth has been now coming from Tier-II and
Tier-III cities. Major drivers of consumers’ shift to online buying has been lenient return
policy, cash on delivery, deep discounts, access to branded products in smaller cities, express
delivery etc. However, some major disadvantages buyers find in online buying include risk of
quality (like size, specifications, colour etc.) , sharing of personal and credit/debit card related
information and inability to bargain.

Shoppy.com emarketplace deals in merchandise across 26 major categories including

electronics, home & kitchen, apparel, fashion, sports and fitness etc. It deals in major brands
as well as local brands. The logistics support is being provided by three different service
providers which covers Tier I, Tier II and Tier III cities. Around 65-70 % of merchandise gets
sold in Tier II and Tier Iii cities. Trialreturns.com provides services for merchandise
rejected by customers.

The potential buyers visit and explore products through their laptops or through smart
phones. Shoppy mobile app was introduced in early 2015. While accessing Shoppy products
using smart phones, potential buyers mostly access through Shoppy mobile app but many
shoppers still use website also using smart phones. More and more traffic is accessing
Shoppy through Shoppy App over last three years and conversion growth rates are also
consistent.

In 2016 and 2017, there was much higher attrition of sellers on Shoppy.com platform. This
was much than its competitors. As a result, the sourcing side has been getting concerned.
Therefore, Shoppy.com has been in dire need of scale to sustain sellers. Though Shoppy has
seen consistent increase in traffic over these years but limited sellers had started dominating
seller rankings in all major categories. Given this concern, category heads in early 2018,
pushed marketing teams to generate more traffic so that more sellers can be accommodated.
Therefore, 2018 witnessed extra surge of traffic due to aggressive marketing and promotion
of low price products in social media sites like Facebook, Instagram etc. including
aggressive push in affiliate traffic Towards close of 2018, Kanti looked quite disturbed by
the fact that returns due to customer rejection of products which has increased drastically to
around 10% average from 6% in 2017 whereas the industry average has been around 5-7 %
in similar paltforms. Rejections are being handled by the logistics facilitator for further
disposal. Apart from rejections, around 35-40% ( against 25-30 % earlier including 2017)
are being returned to sellers because the buyers could not be located or the address is wrong
or any other reason which result in costs incurred for reverse logistics. For the items which
have been put in social media for promotion, the contribution of social media to traffic
generation for the specific items (about 110 select products out of around 27000 products)
has been around 70-80% and conversion rates have been around 8-9% . Analytics cell of
Shoppyhas provided another insight that around 50% of traffic coming through promotional
efforts in social media (inorganic traffic), have previously brought products from Shoppy
through natural search process ( organic traffic). Since many large and established sellers,
who mostly sell national brands, are seeing gradual erosion of their customer base in Shoppy
in 2018 because many new sellers have been able brought on board who are able to leverage
Shoppy’s social media efforts with low price labels. Therefore, these large sellers have
starting retracting their efforts and shifting focus to rival marketplaces. In spite of higher
traffic figures and steady Gross Merchandise Volume there have been troubles due to
aforesaid reasons in operational efficiency, customer repurchase trends, clashes between
marketing and business development teams and more supply side apprehensions in 2018.
Product category owners in business development department handled merchandising
decisions.

Some of major challenges online marketplaces face include (i) customer acquisition & life
time value, (ii) democratizing opportunity for merchandise vendors, (iii) efficient /
responsive supply chain and (iv) customer rejection/ returns. But like blood pressure levels,
measurements beyond thresholds cause concern. The senior team of Shoppy is reassessing
its strategy of more focus on cities other than Tier I vis-à-vis its rivals who focus more on
Tier I & Tier II and also seemingly counter effects of social media efforts on efficiency,
branding and seller engagement concerns. There has been discussion at senior level to
introduce advanced recommendation system which is expected to handle much of
merchandising work based on collaborative filtering. The recommendation systems are being
increasingly used by many platform companies to guide customers with recommendations for
other products and services they might consider usually based on the profile or product
similarities.

Questions:

1. What are various options with Shoppy.com to improve quality of traffic and improve
operational efficiencies? 10 Marks

2. How can recommendation system improve merchandising effectiveness in

Shoppy.com? 10 Marks

3. What are the opportunities and challenges in using recommendation system? How can
this system address concerns of Shoppy.com faced on the seller side? 10 Marks

4. What is your advice for expansion of Shoppy.com into Tier-II and Tier-III cities?
Substantiate your argument.

10 Marks