2. AKSHAY BORHADE, 4007/20 FLIPKART
ICT FOR ORGANIZATIONAL EFFECTIVENESS
EXECUTIVE SUMMARY
The case starts with the fact that Flipkart has got the blue print of the business model beautifully
designed before starting the operations. And it would be very difficult to emulate the similar business
model. Even if competitors think of entering in the business, they will have to mine and invest in
other verticals.
Although India was a little late off the blocks in this industry, Flipkart’s growth has been a matter of
discussion in many markets threatening the retailers and established brands. The case discusses about
the innovations and growths adopted by Flipkart at different stages addressing the Indian marketing
needs. Importance of the supply chain and logistics in this industry, media strategy, acquisition
strategy, foregoing the loss making businesses and problems evolving against the Flipkart. It also
mentions the basic data of the newly emerging competitors in Indian context.
Finally the case drops down the question of how the apprehensions of increasing customer
dissatisfaction might hurt Flipkart. And how should they react to the entry of Amazon and raise
funding without the regular help by VC funding.
PRIMARY REASONS FOR FLIPKART’S SUCCESS
I’ll mention all the primary reasons both mentioned within the case and available online for
reference. Those are as follows:
Flipkart made their entry in the e-commerce when the industry was non-existent, thus
providing them the early-mover’s advantage in terms of suppliers, logistics, warehouse,
internet space, etc.
They started with books (having high profit margins) which do not require huge inventory
maintenance.
Introduced the cash-on-delivery payment mode in the Indian e-commerce industry which
substantially penetrated the market. Especially making the student class and the risk-averse
people more comfortable.
Flipkart had tie-ups with major distributors all over India, thus good supplier base.
Flipkart stocked only popular, frequent moving products and the more obscure products were
delivered directly through the distributors. Thus, it followed both one-to-many and many-to-
many distribution model.
Operated in 30 cities and reduced the order-to-delivery time drastically.
Company deployed the analytics software using it in-house IT team and did not rely on
external consultants.
It allowed employees to be data analyzer (empowering them) and not merely data collectors
which allowed the company to realize lots of benefits.
Qlikview analytic tool has allowed the company to optimize the stock levels and lower costs
associated with the excess stock. Inventory utilization improved by 5%.
Thought of multiple sites and gauge which sites is success enough to attract the consumers.
Invested aggressively in mass media for brand building and bold move of targeting the
consumer base who hasn’t experienced online shopping yet.
3. AKSHAY BORHADE, 4007/20 FLIPKART
ICT FOR ORGANIZATIONAL EFFECTIVENESS
Move from online retailer to online marketplace which meant different sellers meet
different buyers on flipkart and hence no need to hold inventory. Inventory holding cost and
warehouse management no longer required.
Flipkart built its own payment gateway site to secure the payment and improve the success
rates of the payments.
IS THE SUCCESS SUSTAINABLE?
According to Exhibit 5, Flipkart has been a phenomenal success in engaging the customer on the site
which means the site is amongst the best. A customer on an average spends 16 minutes every visit on
the Flipkart site (way above the industry average of 7 minute per visitor). However, on the other hand,
the sales growth is less than 4 out of 6 competitors mentioned in the exhibit.
One of the major problems, I recognize, is the business model has been incurring losses since
inception and it is only the VC funding which has kept the company alive ($441 million till date). The
company should outsource many value chain activities including the payment gateway, warehouse
management, logistics, etc. Minimizing inventory is a key in this industry as hording inventory will eat
out on the profit.
Flipkart’s Ad campaign has been a super-success and also has been eye-catcher to all the age groups
and to all the types of customers. The slogan “Ab sirf shopping nahi, Flipkart karo” which clearly
means shopping is much different than “flipkarting”. Here’s is an interview of Sachin Bansal
(https://www.youtube.com/watch?v=9tWmeLTNS_I) who says flipkart has only one goal of making
shopping easier. About differentiating shopping from flipkarting, traditional e-shopping lacks features
like replacement, low prices, compare feature, etc. which is enable by “flipkarting”.
CHALLENGES FACED BY FLIPKART
Customer Complaints
Flipkart’s facebook saw number of complaints from the unsatisfied customers. Inability of the
company to fulfil the orders made after the product had undergone a price hike. Despite the orders
being placed before the price increase, they promptly cancelled the orders to save the money lost in
procuring the goods at higher cost.
In addition to this, number of cases of delivery delays were reported. The items which took 2-3 days
to delivery now took more than a week to deliver. The fact that the cancellation of the orders were
made without informing the customers exacerbated the anger and discontent among the customers.
Profitability Issues
6 years after the inception, Flipkart was still not profitable. Company was losing 50 crore per month
as a result of which they laid off employees, shut down the music download business and outsourced
logistics, leading to bad press for the company.
Regulatory Issues
Flipkart, along with other e-commerce competitors came under scanner by the Enforcement
Directorate for apparently violating FDI norms. They were accused of receiving funds from foreign
firms even though FDI in multi brand retail was not allowed.
4. AKSHAY BORHADE, 4007/20 FLIPKART
ICT FOR ORGANIZATIONAL EFFECTIVENESS
Cash on Delivery
Though the COD payment mode was successful in acquiring customer and gaining their trust, it posed
many difficulties for the firms. Three prominent ones are mentioned in the case:
1. Higher Lead Time
Payments were made by the courier company weeks after the goods were delivered, thus
increasing the average debtors turnover period and affecting the balance sheet of the company.
2. Higher Rejection Rates
Customer, usually, do not change their mind if the payment is done upfront. But in COD the
customer can change their mind and do not accept or buy the material on delivery. Thus, the
cost is incurred in logistics, recycling back to warehouse even though the sale is not recorded.
3. Courier ‘boys’ conning the company
After a large purchase by the customer like TV, AC, courier ‘boys’ running away with that
amount of money was a problem. As most courier ‘boys’ were rural people and tracking them
was difficult.
Increasing competitors
Following the success of Flipkart in India, many competitors were emerging in the market emulating
the business model of Flipkart. Some of them were Jabong, Snapdeal, Infibeam, Myntra, etc.
HOW SHOULD FLIPKART REACT TO AMAZON’S ENTRY
Barriers to entry in e-commerce industry is definitely very less in India. As far as Amazon is concerned,
the company has much much deeper pockets than Flipkart. This is because Amazon has been
operating in US for a long time now and has been earning profits. They can leverage this fact to
develop faster in India by investing a lot in the logistics, transportation and inventory management.
Thus, offsetting the difficulty of replicating the Flipkart’s success story. Although, flipkart has made
the path of entry much easier to other competitors by showing what possible hindrances are, fighting
it against the large customer base of Flipkart is going to be difficult.
As far the move is concerned, Flipkart should concentrate more on the existing customer base by
understanding them using analytics tools. Minimizing the customer complaints should be the priority
point in their agenda. Analytics tools should be extended beyond the traditional use to understand
customer preferences and tastes so as to devise the “Next best Offer” (NBO) which is customized
and unique to every customer.
As COD has posed few hindrances, make an agreement with the courier companies so as to transfer
the amount for the delivered item at the end of the day. Vertical integration is, definitely, not an option
for this industry as the “time to delivery” is a key parameter for this industry and delivery time will be
affected if integration is done.
Flipkart should make an identity of “Indianizing the online buying” which will hurt the entry and
growth of the Amazon in India. This can be done by improving the bargaining, compare, EMI options
in this section which is presumably what Indians love.
