Prem Bhatia
The Indian e-commerce market has seen tremendous growth in recent years, with the online retail sector expected to reach $350 billion by 2030. However, despite this booming market, the rise of individual e-commerce sellers has not kept pace with other regions globally. While countries like China have seen an explosion of third-party sellers on major marketplaces, Indian sellers face significant hurdles that have prevented a similar proliferation.
For e-commerce businesses in India, the high cost of customer acquisition is one of the biggest challenges. This has become a significant barrier to entry and growth for e-commerce sellers. According to industry estimates, marketing and advertising expenses can account for up to 40 per cent of total sales for online businesses. This level of spending can be unsustainable, particularly for smaller sellers, effectively forcing them out of the market.
Sellers operating their own independent e-commerce websites, such as those built on platforms like Shopify, must rely almost exclusively on paid advertising channels like Facebook and Google Ads to drive sales. However, the cost-per-click (CPC) rates in India are now among the highest in the world. India’s average Facebook Ads CPC is $0.8, compared to $0.21 in Indonesia. This significant marketing spend can quickly hurt profitability, especially for small and medium-sized businesses.
Moreover, the significant increase in the competition has made this issue worse. Large, established brands with substantial marketing budgets can outbid smaller sellers, driving up CPC rates even further. This disparity creates a vicious cycle where only the most well-funded businesses can afford to maintain visibility and attract customers, leaving smaller players struggling to gain traction.
In addition to marketing channels, sellers must also look at multiple sales channels. Major e-commerce marketplaces like Amazon and Flipkart offer sellers access to a huge customer base. However, it is not enough to merely have listings on these marketplaces. Sellers must invest heavily in sponsored product listings, banner ads, and other paid placements to generate interest. This business model of marketplaces, however, is fundamentally at odds with the interests of individual sellers, as the platforms profit more from advertising than from product sales commissions. There is already a significant shift from spending on search and social channels to spending on marketplace ads. It may not be long before marketplace ads dethrone Facebook and Instagram as preferred marketing channels for consumer brands.
The algorithms that govern product visibility on these platforms also add another layer of complexity. Sellers must continuously optimise their listings with keywords, high-quality images, and competitive pricing to maintain their rankings. This requires ongoing effort and investment, which can be daunting for smaller sellers who lack the resources to continuously monitor and adjust their strategies.
The contrast with other regions is quite evident. In Southeast Asia, for example, e-commerce sellers have seen rapid growth and investment driven by lower advertising costs and supportive government policies. According to a report by Google, Temasek, and Bain & Company, the e-commerce market in Southeast Asia is expected to reach $330 billion by 2025, with a projected annual growth rate of 40 per cent.
Governments in these regions have implemented measures to support small and medium-sized enterprises (SMEs), such as subsidies for digital marketing, tax incentives, and infrastructure development. These initiatives have created a more favourable environment for e-commerce sellers to thrive. In contrast, Indian sellers often face bureaucratic hurdles and regulatory uncertainties that can stifle growth and innovation.
One way to manage rising customer acquisition costs is to rely upon a data-driven approach to optimise marketing and advertising strategies. By using advanced e-commerce analytics tools, sellers can better understand their target audience, refine their messaging, and allocate advertising budgets more effectively. AI and machine learning algorithms can help identify the right channels where sellers can direct their resources for positive returns on investment. Previously, only the biggest brands could afford to invest in AI solutions. But the current crop of e-commerce analytics tools gives brands of all sizes access to growth strategies. It is the equivalent of having an in-house data scientist.
For instance, predictive analytics can help sellers anticipate market trends and consumer behaviour, enabling them to make proactive adjustments to their marketing campaigns. Personalisation engines can tailor product recommendations and marketing messages to individual customers, enhancing engagement and conversion rates. By leveraging these technologies, sellers can maximise the efficiency of their marketing spend and achieve better outcomes with fewer resources.
On a broader note, it is essential for industry stakeholders and policymakers to recognise the importance of creating a thriving e-commerce seller ecosystem. Improved policies can facilitate smoother business operations for sellers while mitigating the risks of monopolistic practices such as predatory pricing, deep discounting, seller exclusivity, and preferential treatment. The Commerce Ministry’s implementation of the FDI rule is one such example that can level the playing field. By bringing about such policy changes, the government can promote fair competition and create a balanced and equitable environment for both individual sellers and major online platforms.
Moreover, infrastructure development and logistical support are crucial for the growth of e-commerce in India. Efficient and reliable logistics services can help reduce delivery times and costs, making it easier for sellers to reach customers across the country. The expansion of digital payment systems and improvements in internet connectivity, especially in rural areas, can also drive the adoption of eCommerce and support sellers in tapping into new markets.
The education and training of sellers are equally important. Many potential sellers lack the knowledge and skills needed to effectively run an online business. Providing access to training programs and resources can empower more individuals to become successful e-commerce entrepreneurs. Government and private sector initiatives to enhance digital literacy and e-commerce capabilities can play a significant role.
The Indian e-commerce market holds immense promise, with a rapidly growing consumer base and increasing digital adoption. However, for this potential to be fully realised, addressing the high cost of customer acquisition and creating a more conducive environment for e-commerce sellers is imperative. This will require concerted efforts from all stakeholders, including businesses, government agencies, and industry associations.
