Updated February 26th, 2024 at 14:03 IST

E-commerce Evolution: Balancing profitability and consumer experience

While big-ticket items witness a plateau in online penetration, long-tail products are witnessing a surge in demand.

Reported by: Business Desk
E-commerce | Image:Pixabay
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E-commerce Evolution: E-commerce Evolution: The landscape of e-commerce is undergoing a major shift as companies navigate the delicate balance between profitability and consumer satisfaction, JM Financial analysts said. 

According to a report by India Brand Equity Foundation (IBEF), India’s social commerce has the potential to expand to $ 16-20 billion in the financial year (FY25), growing at a compound annual growth rate (CAGR) of 55-60 per cent. Meanwhile, India’s e-commerce market is expected to reach$ 111 billion by 2024 and $200 billion by 2026.

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Additionally, India has gained 125 million online shoppers in the past three years, with another 80 million expected by 2025. While, the country’s Business-to-Business (B2B) online marketplace would be a $200 billion opportunity by 2030.

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However, recent trends shed light on the emerging paradigm in the e-commerce sector.

Product penetration trends

While big-ticket items witness a plateau in online penetration, long-tail products are witnessing a surge in demand. Despite high online shopping rates for mobiles, a major portion of consumers remain hesitant to increase their digital spending, especially in categories like large electronics, brokerage firm JM Financial highlighted in its note. 

However, small-ticket items such as food, groceries, and home merchandise display a higher propensity for increased online spending, driven by convenience and accessibility.

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Established consumer preferences

Indian consumers exhibit strong platform loyalty across various categories, challenging the perception of value-seeking behaviour. Despite acknowledging potential savings elsewhere, consumers remain loyal to preferred platforms, underscoring the emergence of robust network effects.

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Rising platform costs

E-commerce platforms are implementing higher platform fees and delivery charges, impacting consumer spending habits. Loyalty programmes are increasingly tied to free delivery, reflecting a strategic shift towards profitability optimisation.

Balancing profitability and consumer experience

Despite concerns over rising fees and lower discounts, e-commerce companies prioritise profitability over consumer satisfaction. Consolidation in the industry has led to oligopolistic tendencies, prompting incumbents to adjust pricing strategies to enhance profitability.

Image Credits: Unsplash

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Shift towards profitability

With public markets rewarding profitability and private markets facing funding challenges, e-commerce companies in India are prioritising profit margins. 

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Notably, listed internet companies have witnessed crucial improvements in earnings before interest, taxes, depreciation and amortisation (EBITDA) margins, driven by strategic investments and operational efficiencies.

Consumer expectations

While consumers anticipate higher fees and reduced discounts, dissatisfaction with service quality remains a concern, JM Financial noted. However, platforms are commended for enabling access to long-tail products and niche brands, highlighting opportunities for growth amidst evolving consumer preferences.

The Indian e-commerce industry stands at a critical juncture, balancing the pursuit of profitability with consumer expectations. As early adopters saturate the market and offline players intensify competition, future growth hinges on addressing consumer concerns and delivering superior experiences.

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Published February 26th, 2024 at 12:18 IST