E-commerce in India is in its infancy, but the influence that the Internet has on consumer buying decisions through online activities like product research and price comparison is significant. According to a recent report by Boston Consulting Group (BCG), titled “From Buzz to Bucks: Capitalizing on India’s Digitally Influenced Consumers,” while the size of e-commerce in India is around US$6 billion, “digitally influenced” purchases are five times more and account for US$30 billion. By 2016, this digital impact is expected to increase five-fold to US$150 billion.
Arvind Subramanian, partner and director at BCG and co-author of the report, notes that this lead and lag effect, where e-commerce gets preceded by digital influence, is not uncommon in other markets. “But unlike other markets, in India, because of its unique characteristics like challenges around online payment and logistics, and a high prevalence of Internet access only through mobile handsets, the growth of e-commerce will be much slower relative to digital influence.”
Take mobile Internet. The total number of Internet users in India is expected to increase from 125 million in 2011 to 330 million by 2016. At present, around 45% of online consumers use only mobile technology to access the Internet. As Internet penetration grows, this is expected to increase to 60%. “E-commerce sites and digital media companies find it hard to create a revenue model for mobile-only Internet usage. This is not an insurmountable problem, but solutions will take time to take root and [to] scale. In the interim, digital influence will continue to be significantly larger than e-commerce,” notes Subramanian.
The BCG report also points out that consumers who use the Internet to decide on their purchases spend more than their less-connected peers. It notes: “For instance, digitally-influenced consumers are only 16% of mobile phone buyers, but they account for 24% of spending in that category, buying products that, on average, are 46% more expensive.”
So what does this mean for companies looking to capture a share of the consumer’s wallet? According to Subramanian, this “headroom between digital influence and e-commerce” in India presents a “huge opportunity for traditional consumer firms…. Old economy firms can take advantage of the mismatch between customer needs and lack of an e-commerce supportive ecosystem. Since the actual sales get concluded in brick-and-mortar stores, this is a great opportunity for these companies to strengthen their online presence and use digital media to influence customer decisions. For online retail firms, on the other hand, if a sale does not happen online, they do not make money.”
Subramanian suggests that the importance of digital influence in India has implications for international e-commerce firms, too. According to Indian regulations, FDI is not permitted in single brand as well as multi-brand e-commerce. “But international players can come up with new models where they can monetize the digital influence without necessarily having to conclude it in a transaction. For instance, they can create shopping websites which can generate leads which can then be passed on to the manufacturers,” he says.
According to Nimisha Jain, a BCG principal and co-author of the report: “The fact that air travel, a category with highest digital intensity, has a DII [digital intensity index: the extent to which buyers use the Internet across the purchase cycle] of only 20.6 out of 100 shows how much opportunity still exists for companies to engage Indian consumers online — and to influence their buying decisions.” Adds Subramanian: “It is important for companies to recognize the need to offer their customers a seamless experience across all touch points.”