GROUP 13

Ranjith Reddy B15162

Vaibhav Khanolkar B15181

Vipul Pandey B15184

Final Project Submission

Marketing Management-II

Contents

1. Introduction2. The Journey of Flipkart 3. Acquisitions4. Change in the Business Model 5. Growth Trajectory6. Analysis of Flipkart using Metrics

a) Operational Efficiency b) Customer Relationship and Managementc) Modularity and Scalabilityd) Customer Acquisitione) Revenue Model

7. References

The Journey of Flipkart:

Alumni of Indian Institute of Technology, Binny Bansal and Sachin Bansal founded Flipkart in the year 2007 with an investment of Rs.400000. It has grown over the years and can be called as the leader and torchbearer of E-Retail Sector of India. They have seen a growing segment of Indian population who do not have time to shop in a traditional way and wanted to cash upon this opportunity. They launched the website application from their house in a small apartment in Bangalore. They both hold 20 % of the stock now. Flipkart was originally registered as Flipkart Online Services Private Limited. It initially sold only books through its online platform. As it always happens, when somebody questions the status quo and tries to change the way things happen, there will be resistance, criticisms, and doubts. But all these did not deter the founders of Flipkart to shy away from realising their dream, people called them insane, Only to appreciate them later for their success in doing the unimaginable in a country like India where only not more than 5 % population was using internet then. It initially sold only books through its online platform. Later as the company has grown in volume, value, they have started selling other products such as Electronics, Furniture, Apparels, etc.

Slowly the Indian market and changing demographics has laid the foundation for e-commerce and this has generated buzz in the market for Flipkart. As the company grows and change in dynamics has to be addressed by investing more to provide services and timely deliveries. This made investors compete to invest in Flipkart. Accel India, Venture Capital fund, invested 1 million US dollars in 2010 and later New York based Tiger Global, a private equity firm invested 10 million US dollars in the year 2011 making it the largest investor in the company. But the growing demand of customers and opportunity to become bigger and better has made them raise 1 billion US dollars from the investors who already partnered with Flipkart along with a new investor GIC, a Singaporean Sovereign Fund. As of now, Flipkart has attracted more than 2.7 billion US dollars in multiple rounds of funding.

Acquisitions:

Flipkart wanted to grow as a company and as the giant in Indian E-commerce sector. In the year 2010, Flipkart acquired a social book search tool, WeRead and in the next year, it acquired a digital content management firm, Mime360. Later in the same year, it acquired a Bollywood website on news, Chakapak.com, although it was not interested in using the brand name of the company, it wanted to get the ownership of the digital catalogue it had related to thousands of movie ratings. Flipkart closed its operations and the traffic of that website was diverted to their web application after acquiring an online e-retailer in Electronics, Letsbuys.com, in the year 2012. And it grabbed the attention of the entire nation when it acquired its fashion rival Myntra for a whopping amount which was not publicly disclosed. Flipkart closed down the web application of Myntra and it is only mobile app based e-retailer now.

And it gained significantly by going app only services because of the reduced costs and better service it was able to provide. Flipkart also acquired Appiterate, a start-up which provides marketing platform though mobile, to improve its mobile application and services. It just did not focus on acquiring new start-ups and other ecommerce firms to grow. They also have realised that the innovation is crucial in changing the future. Flipkart believes that the investment they make should give them strategic advantage in terms of technology. In the year 2014, they pumped around 1 million USD into Ather Energy, electric vehicle

based start-up. It also has invested in a MapmyIndia, a start-up which is a working in the field of maps optimisation.

The dream of becoming the undisputed leader in the fashion sector of e- retail motivate them to acquire Myntra which was the largest apparel e-retail store. It makes us wonder, why we take Flipkart as an example when we talk about e-retail when there are hundreds of players operating in this field including close competitors like Amazon and Snapdeal. It does not have the monopoly or the power to stop new entrants to enter the market. But the quality of services provided by Flipkart is one of the thing which differentiates them along various other factors such as the one of the first successful companies in the Indian E-Retail Space along with the credibility of the services they have built over the years, product assortment, quality of shopping which gives a better experience compared to competitors, and its customer service both before and after the shopping.

Change in the Business Model:

Almost 80 % of the sales of Flipkart are done through WS Retail. But the company which moved onto marketplace model a year back has been trying to attract sellers to sell their products directly through its market place model, whereas most of the sellers sell their products through WS Retail. Founders of Flipkart, Sachin Bansal and Binny Bansal, used to own WS Retail with others. As Indian Laws do not allow direct investment in inventory based model, they had no option but to sell their stake in WS Retail. This prompted Flipkart to again focus on becoming marketplace model which initially it was started as. It was also not easy to work on an inventory model which requires the company to recruit more people and take control of warehouses to satisfy the growing demand of customers. If the company takes the path of marketplace, then they can focus completely on increasing the customer experience by delivering quality products timely which would further enhance the value of the firm. WS Retail also separated off ekart, its logistics subsidiary into a separate company as it would enhance the service delivery because of greater autonomy in its operation.

Though there were restrictions legal on the inventory model because of FDI limit in this model. There were other factors which also motivated it to go for marketplace model. By going marketplace model driven e-retailer, Flipkart will gain in terms of category depth as more number of sellers would mean more diverse the product portfolio will be and better customer engagement which will be turned to more satisfied customer. This will also discourage customers to go to competitor or the traditional brick and mortar shop as it increases the chance of delivering what customer wants because of choice given to the customer. One more advantage of going marketplace is the low prices which will be offered by small retailers. These retailers would try to keep their profit as they don’t have to invest more on infrastructure and just ship the orders they get. Even the loss if there is any will be borne by them as they want increase the seller ratings. The risk of owning a product is more in the inventory model whereas the marketplace model does not the good and just engages the customer on its website to buy a product which is owned by a seller. This would also reduce the capital needed to buy these products. This generates more profit as the risk is also directly transferred to the customer from the owner and because of the commission company would get by providing the platform.

In the year 2013, Flipkart had changed their market place and had become a market place. By that year, they had only 50 sellers who sells their products through Flipkart. It completely changed how they work, operate, and do business. Earlier, they has inventory of their own as it was primarily an inventory based

model. This change in their business model will make Flipkart will do the delivery of products which sellers would sell directly to the customers through the platform of Flipkart. This posed few challenges such as selection of sellers who offer quality products as it will have an impact on the Flipkart brand. At the same time, there were advantages like display of varied products with greater product assortment and this will make Flipkart to focus on proving better services and improving their core competencies. They also wanted to take Flipkart to masses. This also gives an opportunity for sellers to sell their products to wider audience and make better profits. The number of people who visit Flipkart website is way more than the footfall of all the malls in top ten combined. It encouraged small retail niche players to sell their products through Flipkart as it does not differentiate them from the large retail players. Initially the inventory was manged by WS Retail. It still continues to be the top seller in Flipkart.

Growth Trajectory:

As one grows bigger, the problems and challenges one faces become tougher and it will be very difficult to overcome them. When it was at its nascent stage, the biggest challenge for Flipkart if to find vendors who would sell books through its platform as it did not have inventory. The next challenge for it was to make customers believe that it is safe to pay online and find online ecommerce payment gateway. It was not a cake walk for them to build business relationship with customers and vendors. They had to make their own path as the industry of E-retail was new to Indian shoppers and also helped others to follow their lead. In the month of March, 2014, it had achieved a rare feat of hitting the mark of 1 billion US dollar Gross Value of Merchandise and it has grown manifold since then. As of now, the Gross value of goods sold is around 4 billion US dollar. They target to reach the figure of 8 billion US dollar Gross Value of Merchandise by 2017. They also wish to partner with 1 lakh sellers and realise their target of selling 1 billion goods in this year by selling more than 25 million goods every month. It has an employee strength of 33000 people working for them now.

Since its inception, it has grown and has become in terms user experience, delivery time and quality of goods. But the increase in user base is posing a challenge to Flipkart to maintain their own standards. It has raised 15 billion US dollar in the month of May this year and wants to use that money to groom talent, innovate new technology and improve the supply chain management. Now it is focusing more on building its own strategy because of the increased competition from Amazon and Snapdeal. Their next target is to present everywhere in the country including small towns, and making the online payment gateway more secure and easy. It is also expected that Flipkart will go public in the year 2016 and is hoping to raise 5 billion USD, which is supposed to be the largest by an Indian company yet, through its initial public offering by getting listed in New York Stock Exchange. The company is valuated at over 30 billion USD. It was also successful in achieving the unimaginable like selling goods of Rs.660 crore worth on their Big Billion Day. It was able to convert every challenge it faced to an opportunity. It is also possible that, if the growth continues, then one day we can see an Indian company becoming a 100 billion USD worth within a short span of time, which would set the standard for other companies.

The vital part of application development was having a robust backend, as it is the one which connects all different processes of completing the transaction and selling of products. For a brief period, it worked as a consignment model in which, the goods will be procured once the order is placed. But due to the increased demand, they moved to the inventory model in which they maintain a warehouse and will process the products from their own warehouse. Handling reverse logistics is the major challenge they face. It is very

difficult to track the orders which are not delivered and even the cost of managing these orders is very much high. The customer service played a major role in making the company successful. Although they started of creating awareness amongst the consumers by offering discounts on the products but the game changer for them was the customer service, the founders never believed that this would be replaced by offers. The organisation poses s bigger problem as it grows, suddenly the start-up culture of having independence will be replaced by processes which will make teams depend on their managers. But the Flipkart functions as start-up, although it has established itself in the market. Even the customer service executive were given autonomy to take their own decisions and this helps them to own the responsibility and address the customer issues efficiently.

Although Flipkart is seen as an Indian start-up which made into bigger league through its innovative business model. There is a criticism that they have taken most of their structure and operational capability by emulating the practices of Amazon, where Sachin Bansal and Binny Bansal worked before starting Flipkart. Though they have come with their own innovations like Cash on Delivery, Big Billion Day, and others, but could not definitely withstand the superiority of Amazon in almost all areas of e-retailing like infrastructure, supply chain management, organisational structure, financial capability on a much higher level, but the government limitations are a hindrance for that company to take on Flipkart. Therefore, Flipkart should focus on improving their capabilities to the level of Amazon to compete with them once the regulations are removed on direct FDI. It is also playing its part by moving towards achieving that superiority and all the acquisitions it has made in the recent years was nothing but bracing itself to face its rival who is powerful and invincible if the regulations are lifted.

ANALYSIS OF FLIPKART USING METRICS:

For the success of any organisation’s business model, it must have some differentiating factor, which sets it apart from its competition. There are some metrics which we believe help us in quantifying the

differentiating factor and help us come up with a certain framework in which to analyse the said model. These metrics can be analysed from Flipkart perspective as:

Operational Efficiency:

The core of the business model of Flipkart is its operational efficiency through its effective supply chain management. These can be categorised as Inbound logistics which is about rationalised supply chain, capability of storing or operations, and outbound logistics which does the final fulfilment process. As the saying goes “Strategy defines the structure of an organisation”, Flipkart was built around its strategy of integrated all the above mentioned components well. Hence the structure complements the structure rather supplementing it. And as a company which is dependent on the digital technology, it is important they make proper use of technology to enhance their service. Technology was used to integrate the entire process by making it easier to deliver the goods timely. In fact, in its initial days, it was an inventory based model, which helped them to get the nuances the supply chain management. They also partnered with Mumbai Dabbawalas to improve their logistics. Though it can be called as an E-Retailer, but the crux of the organisation lies in its logistics management as it is the one which enhances the service to the customer once a product was purchased. If we look at the core competitive advantage of Flipkart, it is it’s not retailing capabilities as this can be easily imitable without much investment and is not sustainable in the long run. However, the logistics and supply chain management cannot be imitated that easily. This would also discourage new entrants to enter the market as they need to have huge amount of capital to build this kind of supply chain capability. Hence, this is one of the differentiating factors which sets Flipkart apart from other players except Amazon.

Customer Relationship and Management:

One of the major reasons, why Flipkart was able to withstand sever completion from players like Snapdeal and Amazon is its efficient customer relationship management. In fact it was founded on the principles of building a profitable relationship with the customer through credibility, reliability and the pre and post sales service. This also differentiated it from others as satisfying the need of customer is the foundation for any commerce. All these help Flipkart to retain customers and make them perform repeated purchases, thereby increasing the customer equity for the firm. In fact the customer will be communicated constantly and enables them to make changes to the order and this customer service works as efficiently as any arm of the company as the customer service executives were given autonomy to function independently and to take their own decisions while dealing with a customer which they believe that enhances the overall service delivery and so does customer satisfaction.

Modularity and Scalability:

Flipkart has grown bigger over the years, because of many reasons such as increased customer demand, growing digital literacy in the country, growing working class population who do not have time. Flipkart was able to provide satisfaction to the customers throughout all these years. It was able to scale up its operations and it is not an easy task to keep up to the expectations of customers. It took around 10 days after they started their operation to get their first selling happen. Now, they are eying around selling 1 billion goods in the year of 2015. It is imperative they need to improve not just their supply chain management but also the website performance which can provide seamless access to the millions of customers who visit their site every day. This was done by using technology efficiently. The number of people who visit their website, who proceed to checkout, and who place their orders, etc. are estimated using analytics and thus they forecasted demand which then determined their server capacity using cloud services. The forecasted demand also helped to plan for the logistics operation. Although there were few hiccups in the scalability because of the big billion day on which the forecast has gone wrong and the web application has gone out of service multiple times. These were taken care of in the next big billion day which was held in this year. The scalability and modularity of Flipkart has shown that they can compete with even bigger players like Amazon in the long run with their time-tested their operational capability

Customer Acquisition:

For any business model, acquiring customers and make them use your service or buy your product is very difficult and to achieve this, companies have to incur some cost for promotion and to create awareness about their product/service in the market. Flipkart initially started off by offering huge discounts which were over and above the discounts given by the distributors and sellers. They have to incur that cost to acquire customers as all the other competitors offered discounts which kind of still forcing Flipkart to discount their products although they have the brand recognition for their service quality. For e-commerce companies, it is also difficult to retain those customers. On an average basis, to recover the cost incurred on acquiring a customer, it is needed that a customer has to perform 3-4 transactions using their service. Flipkart although offers discount, they always believed that it is not sustainable in the long run. They wanted to retain their customers through their customer service which differentiates them from its competitors. They also need to incur costs in Search Engine Optimisation (SEO) and Search Engine Marketing (SEM). The competition has reached such a level that when searched for Big Billion Day on Google, results of Amazon were shown which implies that Amazon has paid hugely to Google for Search Engine Marketing.

Revenue Model:

The revenue model of Flipkart was mostly based on generating income by charging commissions from the sellers for the products which were sold through their platform. It charges anywhere between 5-20% depending on the seller, type of product and value of the product. But over the last 2 years, it has been trying hard to push itself to be a marketplace model. So it wants to reduce the commission and is looking at emulating the model of Chinese E-Commerce giant Alibaba. The current model which they are looking at will reduce the commission they get from sellers but increase the overall revenue by encouraging new sellers to partner with Flipkart. This model will also increase customer satisfaction because of the increased product choices to customers and the increased number of sellers will also increase the chances of delivering products more quickly. Flipkart is also eying on making money through other channels of its operations like: ads on its website by the sellers which will compensate for the loss in the reduction of commission charges, increase revenue through logistics and payments. Payments revenue generation will beat other sources of its revenue generation if implemented successfully. All these factors show that Flipkart has been innovative in their entire business model and this would explain why it has been so successful.

References:

1. http://articles.economictimes.indiatimes.com/2015-03-19/news/60286677_1_ws-retail-binny-bansal-flipkart-spokesperson

2. http://www.businesstoday.in/magazine/features/online-retailers-india-struggle/story/24172.html3. http://www.worldwidejournals.com/ijar/file.php?val=February_2015_1422883561__88.pdf4. http://epub.lib.aalto.fi/en/ethesis/pdf/12190/hse_ethesis_12190.pdf5. http://yourstory.com/2014/08/sachin-bansal-flipkart-journey/6. http://content.maas360.com/www/content/cs/cs_maas360_mdm_flipkart.pdf7. https://want2articulate.wordpress.com/category/business-models/8. http://blogs.economictimes.indiatimes.com/et-commentary/why-indian-startups-need-to-be-

innovative-with-innovations/